RETAIL    CREDITS    AND 
COLLECTIONS 


HARPER'S  RETAIL  BUSINESS  SERIES 

Edited  by 
JOHN  B.  SWINNEY 

[Professor   of    Marketing,    College   of   Commerce   and    Business   Administration 

Tulane  University;  author  of  "Merchandizing,  Wholesale  and  Retail; 

formerly  with  John  Wanamaker,  New  York.] 

RETAIL   SELLING.     A  GUIDE  TO  THE  BEST  MODERN  PRACTICE 

By  JAMES  W.  FISK 

[Director,  Bureau  of  Retail  Affairs,  New  Jersey  State  Chamber  of  Commerce; 
formerly  Director  of  Selling  Service,  Lord  &  Taylor's,  New  York;  and  of 
J.  L.  Hudson  Company,  Detroit,  etc.;  formerly  Director  of  Courses  in  Selling 
and  Advertising,  Dry  Good's  Economist's  Training  School.] 

RETAIL   BUYING:    MODERN   PRINCIPLES  AND   PRACTICE 

By  CLIFTON  C.  FIELD 

[Manager,  Chamberlain  &  Patterson's,  Natchez,  Mississippi;  formerly  Instructor 
in  Merchandizing,  University  of  Wisconsin;  formerly  with  Marshall  Field  & 
Co.,  Retail,  Chicago,  and  James  McCreery  &  Co.,  New  York.] 

RETAIL   CREDITS  AND   COLLECTIONS 

By  DWIGHT  E.  BEEBE 

[Bursar,  Alexander  Hamilton  Institute,  New  York;  formerly  Lecturer  on  Retail 
Credits  and  Collections,  Bronx  Union  Y.  M.  C.  A.,  New  York  City.] 

In  Preparation 
RETAIL  ORGANIZATION  AND  MANAGEMENT 

By  G.  PRYAR  IRWIN 

[Instructor  in  Merchandizing,  University  of  Wisconsin;  Lecturer  on  Merchandiz- 
ing, Dry  Goods  Economist's  Lecture  Service.] 


GOOD   CREDIT 

r j  iHE  finest  thing  a  man  can  have  is  credit 
•*-  at  the  store;  it  is  a  balsam  and  a  salve 
for  every  mortal  sore.  The  customer  who  pays 
his  debts  when  due  has  shining  fame.  "He 
is  the  best  of  all  good  bets"  the  merchants  all 
exclaim.  And  when  misfortune  dogs  his  heels, 
as  it  will  visit  men,  and  he  is  shy  of  plunks 
and  wheels,  of  kopecks,  dough,  and  yen,  the 
merchants  say:  "Buy  what  you  will,  and  we 
will  gladly  wait  till  you  are  fixed  to  pay  the 
bill — we  know  that  you  are  straight"  The 
man  who  does  not  promptly  pay  the  merchants 
what  he  owes,  on  the  appointed  settling  day,  all 
kinds  of  trouble  knows.  And  when  misfortune 
takes  his  trail  and  hands  him  sundry  knocks^ 
and  he  is  shy  of  dust  and  kale,  of  rhino,  scads, 
and  rocks,  the  merchants  say:  "We  cannot 
sell  to  gents  like  you  on  time,  for  when  you're 
prospering  quite  well,  you  won't  cough  up  a 
dime."  Poor  credit  all  your  virtues  queers 
and  gives  a  punk  renown,  and,  though  you 
live  a  hundred  years,  you  II  never  live  it  down. 

WALT  MASON. 


RETAIL   CREDITS 
AND  COLLECTIONS 

MODERN    PRINCIPLES    AND    PRACTICE 


BY 

DWIGHT   E.  BEEBE 

BURSAR,     ALEXANDER     HAMILTON     INSTITUTE,     NEW     YOKK;     ASSISTANT     IN 

BUSINESS   ENGLISH,   NEW   YORK  UNIVERSITY  SCHOOL  OF  COMMERCE; 

LECTURER   ON   CREDITS  AND   COLLECTIONS,   BRONX  UNION, 

Y.M.  C.A.,     NEW     YORK     CITY 


HARPER  &  BROTHERS  PUBLISHERS 

NEW  YORK  AND  LONDON 


RETAIL  CREDITS  AND  COLLECTIONS 

Copyright,  1919,  by  Harper  &  Brothers 

Printed  in  the  United  States  of  America 

Published  January,   1919 


CONTENTS 

Part   I 
THE  PLACE  OF  CREDIT  IN  A  RETAIL  BUSINESS 

PAGE 

EDITOR'S  PREFACE xiii 

CHAPTER  I.    THE  REASON  FOR  CREDIT 3 

Difference  Between  Wholesale  and  Retail  Credit — When  an 
Expense  Is  Not  an  Expense — Credit  Makes  Regular  Customers 
— Credit  Sales  Average  Larger  per  Person — Credit  System  De- 
velops Confidence  in  Store — Credit  System  Lessens  Complaints 
— Credit  System  Makes  Better  Merchants — Credit  Customers 
Understand  and  Appreciate  Being  Charge  Customers — 
Cash  Store  Attracts  Poorest  Trade — Credit  System  Improves 
Selling  Service — Credit  System  Connects  With  Future — Credit 
a  Customary  Convenience — Credit  Required  by  Modern 
Society — Credit  Makes  Home  Accounting  Easier — Does  a 
Charge  Account  Lead  to  Extravagance? — Credit  Saves  Cus- 
tomer's Time — Credit  System  Is  Cheaper  Than  C.  O.  D.— »• 
Does  Credit  Add  to  Store's  Expenses? — Do  Cash  Custom- 
ers Pay  for  Credit  Losses? — Do  Cash  Stores  Make  Lower 
Prices? — Do  Charge  Accounts  Lead  to  Special  Demands? — 
Do  Charge  Accounts  Tie  Up  Merchant's  Capital? — Credit 
System  a  Cause  of  Failure — Credit  and  Years  of  Panic — 
Substitutes  for  Credit — Credit  Business  Pays. 

CHAPTER  II.    THE  PROBLEMS  OF  THE  CREDIT  SYSTEM      ...    19 

What  a  National  Investigation  of  Collection  Records  Shows 
— How  People  in  Various  Parts  of  the  Country  Pay — The 
Effect  of  East-going  Collections — How  Retail  Lines  Collect — 
Department-store  Collections — Grocery  Collections — Cloth- 
ing-store Collections  —  Hardware-store  Collections  —  Drug- 


442167 


CONTENTS 

PAGE 

account  Collections — Jewelry-store  Collections — What  These 
Figures  Show — Losses  from  Bad  Debts — Credit  a  Merchan- 
dizing Problem — What  Is  a  Safe  Limit  for  Bad-debt  Losses? 
— An  Investigation  That  Determined  the  Figures — Bad-debt 
Losses  the  Price  Paid  for  Greater  Volume  of  Business — Fixing 
a  Credit  Policy  That  Will  Build  a  Store's  Business  at  Mini- 
mum Loss. 

CHAPTER   III.    DETERMINATION    OF   CREDIT   AND    COLLECTION 

POLICIES 32 

General  Preliminary  Considerations — The  Duty  of  the  Man 
Deciding  Credit  Policies  to  the  Community — Credit  Policy 
in  Its  Relation  to  Other  Functions  of  the  Business — Credit 
Policy  in  Relation  to  the  Character  of  the  Business — Credit 
Policy  in  Relation  to  the  Size  of  the  Business — Credit  Policy 
in  Relation  to  Local  Conditions — Whom  to  Accept  as  Credit 
Customers — Determining  Credit  Terms — How  Typical  Stores 
Arrive  at  Credit  Terms — Charging  Interest  on  Overdue  Ac- 
counts— Determining  Collection  Policies — Depending  on  Let- 
ters to  Collect — Using  Personal  Collectors — Should  the  Store 
Sue  a  Customer  for  a  Delinquent  Account? — Where  to  Get  the 
Basis  for  Deciding  These  Questions  of  Policy — Determining 
Costs  and  Results — Expense  Allowance  for  Maintaining 
a  Credit  Office — Collection  Expenses  Allowable — Credit 
Losses  Allowable — Statement  of  Typical  Policies — Outline 
of  a  Credit  and  Collection  Policy  for  a  Retail  Store. 


Part    II 
ORGANIZATION  FOR  CREDIT  WORK 

CHAPTER  IV.    THE  CREDIT  MAN 51 

Who  Is  the  "Credit  Man"?— How  Big  a  Job  Is  It?— Cen- 
tralizing Responsibility — Difficulties  of  the  Work — Personal 
Attributes — Relations  With  Other  Departments — The  Solar 
Plexus  of  the  Business — Credit-granter  as  Salesman — Credit 
Angle  on  the  Advertising — As  a  Trade  Investigator — Nec- 
essary Qualifications — As  a  Business  Adviser, 


CONTENTS 

PAGE 

CHAPTER  V.    THE  FUNCTION  OF. THE  CREDIT-OFFICE  ORGANIZA- 
TION   61 

The  Office  System — Details  Are  Important — Need  for  Cen- 
tralized Responsibility — What  the  Office  System  Should 
Provide — The  Backbone  of  the  Credit  Organization  Is  Its 
Files — One  Form  for  Many  Uses — How  the  Form  Is  Used. 
New  Accounts — When  Changes  Are  to  Be  Made  in  the  Files 
— How  the  Bookkeepers  Help — Investigation  of  New  Ac- 
counts— Where  the  Credit-office  System  Helps  or  Hinders 
Service  to  Customers — The  Place  for  Credit  Interviews — 
The  O.  K.  Telephone  System — The  Pneumatic-tube  System 
— Relation  of  Bookkeeping  to  Credit  Office — Using  Book- 
keeping Machines — Posting  by  Machine — The  Office  Force 
— Forms  and  Blanks. 

CHAPTER  VI.    CO-OPERATIVE  METHODS  IN  CREDIT  INVESTIGA- 
TION  77 

Origin  of  Credit  Information  Service — Began  With  Needs 
of  Wholesalers — Why  Not  Dun's  or  Bradstreet's  for  Re- 
tailers?— What  Retailers  Need :  An  Exchange  of  Ledger  Ex- 
perience— The  Development  of  Retailers'  Co-operative 
Credit  and  Collection  Bureaus — What  Co-operative  Bureaus 
Aim  to  Do — Organization  of  a  Retail  Credit  Bureau — Get- 
ting Retailers  to  Agree  to  Finance  the  Bureau — Retailers 
Agree  to  Give  Data  to  No  Other  Agency — Success  of  the 
Bureau's  Records— Shall  There  Be  a  Rating-book?— Value  of 
Frequent  Meetings  of  Local  Retail  Credit  Men — The  Man- 
ager and  His  Work— The  Clerical  Staff— Files  and  Records 
— Notice  of  Detrimental  Reports — Indebtedness  Report  or 
Clearance — Uniform  Application  Blanks — Private  Telephone 
Service — Providing  Desired  Information — Collection  Ser- 
vice— Sending  Out  Personal  Collectors — Cost  of  Operation 
— A  System  Based  on  Abnormal  Transactions — Pay-up 
Week — How  Pay-up  Week  Is  Organized — Meet  Your 
Obligation  Sunday— General  Advertising  to  Help  Retail 
Credits — Advertising  Advantages  of  Credit — Local  Credit 


CONTENTS 

PAGE 

Associations  Operating  Without  a  Central  Bureau — Retail 
Credit  Men's  National  Association — Advantages  of  Co- 
operation. 

Part  III 
CREDIT-OFFICE  PROCEDURE 

CHAPTER  VII.    HANDLING  APPLICATIONS  FOR  NEW  ACCOUNTS    109 

Information  Essential  for  Judgment  of  Credit  Risks — Im- 
portance of  a  Good  Impression  on  New  Customers — What 
Information  to  Get — Need  for  Tact — Questions  to  Be  Asked 
— Impressing  the  Terms  of  Credit — Use  of  References — 
Verifying  the  Facts — Need  for  Classification  of  Accounts — 
Turning  Down  Doubtful  Applications — Classification  of 
Accounts  for  Ratings — Fixing  Credit  Limits  for  Individual 
Buyers — When  to  Raise  the  Limit. 

CHAPTER  VIII.    AUTHORIZING  CHARGE  PURCHASES  AND  KEEP- 
ING UP  CREDIT  RECORDS 126 

Classification  of  Purchases — Problem  to  Prevent  Delays  in 
"Charge  Taken"  Sales — Placing  Responsibility  for  Identi- 
fication— The  Card  System  of  Authorizing  Purchases — The 
Credit-authorizer's  Book — Authorizing  "Charge  Sent"  Pur- 
chases— Watching  for  Changes  in  Customer's  Credit  Stand- 
ing— Keeping  Credit  Information  Up  to  Date — Reviving 
Dormant  Accounts. 

CHAPTER  IX.    HANDLING  COMPLAINTS  AND  ADJUSTMENTS    .    .    137 

National  Conservation  and  the  Handling  of  Returned  Goods 
— The  Story  of  the  Rice-boiler — The  Relations  of  Adjustments 
to  Credits  and  Collections — The  Credit  Man's  Relation  to 
Adjustments — What  Rights  Has  the  Customer? — Rules  for 
the  Return  of  Merchandise — Unjust  Claims — Disputed 
Claims — Trade  Abuses  and  Credit  Work — Credit  Di- 
plomacy— Writing  Letters  to  Bring  Settlements  of  Disputed 
Accounts — Salesmanship  in  Adjustment  Letters. 


CONTENTS 

Part   IV 
COLLECTION  METHODS 

CHAPTER  X.    PLANNING  THE  COLLECTION  SYSTEM 155 

How  a  Debtor's  Mind  Works — Making  Clear  the  Store's 
Policy — The  Policy  on  Following  Up  Accounts — Testing 
the  Policies— The  Monthly  Statement— The  First  Reminder 
—The  Collection  Follow-up — Segregating  Delinquent  Ac- 
counts— Psychology  of  the  Follow-up — Get  the  Reason  for 
Delinquency — When  Debtor  Calls  at  Store — Accepting 
Small  Payments  on  Account — The  Personal  Collector — 
Keeping  in  Touch  With  Debtors. 

CHAPTER  XI.    COLLECTION  CORRESPONDENCE 167 

Putting  "Salesmanship  into  Collection  Letters — Attitude 
Toward  the  Customer — Mistake  of  Being  Too  Diplomatic — 
Avoid  Negative  Suggestions — Successful  Types  of  Appeals 
—The  Appeal  to  Good-will— The  Appeal  to  Pride— Ap- 
peals to  Justice  and  Fair  Play — Use  of  Form  Letters — Use 
of  Form  Paragraphs — Style,  Appearance,  and  Tone  of  Letters. 

CHAPTER  XII.    COLLECTING  BY  PERSONAL  CALL 178 

When  Personal  Collections  Are  Effective — Selecting  Personal 
Collectors — Qualifications  and  Employment  of  a  Collector 
— Training  of  Collectors — When  to  Appeal  for  Payment — 
The  Awkward  Call — Where  to  Appeal  for  Payments — 
Methods  of  Handling — Daily  Reports. 

CHAPTER  XIII.    UNUSUAL  COLLECTION  METHODS 186 

Why  Unusual  Methods  Are  Necessary — Taking  Notes  in 
Settlement — Telephone  Calls — Registered  Letters — Writing 
to  Friends,  Relatives,  and  Guarantors — Tracing  Lost  Debtors 
— Tracing  Through  Changes  of  Address — Tracing  Through 
City  Moving  Ordinance — Tracing  Through  the  Post-office — 
Tracing  Through  Express  Company — Tracing  Through 
" Trustee"  Letters— Tracing  Through  Credit  World— Other 
Tracing  Systems — Black  Lists — Offering  Debtors'  Delinquent 
Accounts  for  Sale. 

CHAPTER  XIV.    FORCING  COLLECTION  OP  DIFFICULT  ACCOUNTS    197 
When  Should  Pressure  Be  Applied? — Investigation  Before 


CONTENTS 

PAGE 

Resorting  to  Force — The  House  Agency — Selecting  an  At- 
torney— Using  Attorneys  in  Other  Cities — Following  Up 
Out-of-town  Attorneys — The  Service  of  the  Forwarder — 
Fees — The  Question  of  Costs  and  Disbursements — Attorneys' 
Services,  Constructive  and  Destructive — Taking  Collection 
Advice  from  the  Attorney — Co-operating  With  the  Attorney. 

CHAPTER  XV.    LEGAL  AIDS  TO  COLLECTION 208 

Knowing  Collection  Law — Turning  Accounts  into  Judg- 
ments —  Exemptions  — Garnishee  —  Supplementary  Proceed- 
ings— Attachments — Replevin — Extensions;  When  to  Grant 
Them — Legal  Aspects — The  Composition  Settlement — Who 
May  Become  Bankrupt — Voluntary  and  Involuntary  Bank- 
ruptcy— Proof  and  Allowance  of  Claims — Credit-granter 
and  the  Bankruptcy  Laws — Changes  in  the  Law  Sought  by 
Retailers — Legal  Action  Through  Credit  Bureaus. 

CHAPTER  XVI.    THE  CREDIT  MAN  AND  THE  BANK    ....    221 

Where  the  Credit  Man  Meets  the  Banker — The  Retailer 
and  the  Trade  Acceptance — The  Acceptance  Defined — 
Change  from  Open  Book-accounts  to  Acceptance — Five  Ad- 
vantages of  the  Acceptance — Encourages  Prompt  Payment 
— Discourages  Unfair  Claims — Discourages  Overbuying — 
Increases  the  Store's  Borrowing  Power  at  the  Bank — Limi- 
tations on  the  Use  of  Trade  Acceptance  by  Some  Retailers — 
Form  of  Acceptance — Convenience  of  a  Bank  Account — The 
Meaning  of  an  Overdraft — Stopping  Payment  on  Checks — 
Handling  Sight  Drafts  Through  the  Bank — The  Place  of  the 
Bank  Draft  in  Collection  Follow-up — Protesting  Checks  or 
Drafts — Using  Care  in  Indorsement  of  Checks — Constructive 
Aid  from  the  Banker — When  the  Banker's  Friendship  Helps. 

CHAPTER  XVII.    CREDIT  AS  A  BUSINESS-DEVELOPER  ....    240 

The  Credit  Man  as  a  Mixer — Prosperous  Community  Makes 
Prosperous  Retailers — Broadening  the  Store's  Influence — 
Creating  Wants  That  May  Safely  Be  Supplied— Recalling 
the  Store's  Service — Making  the  Community  Safe  for  Busi- 
ness— How  the  Morris  Plan  Works — Promoting  Sales 
Through  a  Broad  Credit  Policy— Credit  Administered  from 
the  Sales  Angle. 


EDITOR'S    PREFACE 

IN  planning  this  series  of  brief  working-manuals  for  re- 
tailers, a  large  number  of  inquiries  were  made  as  to  the 
topics  under  discussion.  It  was  soon  apparent  that  the 
problem  of  granting  credits  and  of  making  collections  was 
one  which  concerns  every  retailer — even  including  the  oc- 
casional one  who  does  a  strictly  cash  business — and  that 
it  is  one  of  the  most  difficult  of  all  retail  problems.  So  the 
present  volume  has  been  included  among  the  first  of  the 
series. 

The  point  of  view  is  that  of  the  ordinary  retailer  who 
wants  to  handle  his  credits  and  collections  systematically 
and  yet  with  the  least  possible  amount  of  complicated  and 
time-consuming  system.  The  discussion,  therefore,  can  be 
applied  to  a  store  of  any  size  with  such  slight  modifications 
as  are  always  needed  to  adjust  any  system  to  individual 
conditions. 

The  author  wishes  me  to  acknowledge  the  assistance  of 
the  many  credit  men  who  helped  in  one  way  and  another, 
some  in  planning  the  book,  some  in  reading  part  or  all  of 
the  manuscript,  and  some  in  offering  special  suggestions 
from  their  own  experience.  Among  such  are  Mr.  Frank 
Farrington,  editor  of  Successful  Storekeeping ;  Mr.  James 
W.  Fisk,  Director  of  the  Bureau  of  Retail  Affairs,  New 
Jersey  State  Chamber  of  Commerce;  Mr.  W.  E.  Balch, 
Manager  Retail  Credit  Bureau,  Indianapolis;  Mr.  Curtis  F. 
Johnson,  president,  National  Federation  Implement  and 


EDITOR'S    PREFACE 

Vehicle  Dealers'  Association,  Rush  City,  Minnesota;  Mr.  D.  F. 
Howe,  secretary,  Utica  Chamber  of  Commerce,  and  manager, 
Utica  Retail  Credit  Bureau;  Mr.  John  Magann,  credit 
manager,  John  Wanamaker's,  New  York;  Mr.  Daniel  F. 
Grumley,  credit  manager,  Lord  &  Taylor,  New  York;  Mr. 
R.  L.  Lienhard,  credit  manager,  D.  H.  Holmes  Company, 
Limited,  New  Orleans;  Mr.  Frank  L.  Miller,  manager,  New 
Orleans  Retail  Credit  Men's  Association;  Mr.  H.  P.  Sheets, 
secretary,  National  Retail  Hardware  Association,  Argos, 
Indiana;  and  the  editors  of  Credit  World,  the  official  organ 
of  the  Retail  Credit  Men's  National  Association. 

JOHN  B.  SWINNEY. 

NEW  ORLEANS,  February  1,  1918. 


Part    I 

THE    PLACE    OF    CREDIT    IN   A   RETAIL 
BUSINESS 


RETAIL   CREDITS   AND 
COLLECTIONS 


THE  REASON   FOR   CREDIT 

"PLEASE  charge  it." 

Every  time  he  hears  this  the  average  merchant  begins  to 
think.  Will  she  pay  promptly?  How  long  shall  I  have  to 
wait?  Why  should  I  trust  her,  anyway?  After  all,  does  it 
pay  to  run  a  credit  business?  And  more  questions  of  the 
sort. 

Now  we  might  as  well  clear  up  matters  right  at  the  be- 
ginning. Why  do  most  merchants  continue  to  allow  charge 
accounts  if  such  questions  arise?  For,  as  we  shall  see  later, 
except  for  a  few  lines,  like  cut-rate  groceries,  the  practice 
of  doing  an  entirely  cash  business  is  not  growing.  Mer- 
chants continue  credit  systems  for  one  reason,  and  one 
reason  only.  They  continue  them  because  by  so  doing  they 
can  be  more  successful  in  business.  As  long  as  a  credit  system 
is  a  great  convenience  to  the  customer — so  much  so  that  it 
increases  the  volume  of  business,  and  likewise  the  turnover, 
in  all  but  cut-rate  stores,  it  will  result  in  enough  larger 
profits  to  the  store  to  more  than  make  up  for  its  cost  and 
2  3 


RETAIL    CREDITS    AND    COLLECTIONS 

any  loss  entailed.  In  other  words,  credit  is  like  advertising 
or  window  displays  or  good  store  cleanliness  and  attractive- 
ness. It  costs  money,  but  it  is  a  good  investment.  It  pays. 

Difference  Between  Wholesale  and  Retail  Credit.  Much 
of  the  cause  of  doubt  arises  from  considering  retail  credit 
on  the  basis  of  wholesale  credit.  The  wholesaler  gives 
credit  to  the  retailer  in  order  that  the  retailer,  by  resale  of 
the  article,  may  get  back  the  amount  paid  and  a  profit. 
If  the  retailer  cannot  resell,  both  are  involved.  The  sale 
to  the  consumer  has  no  such  strings  tied  to  it.  Whole- 
salers give  large  discounts  for  cash,  because  they  recognize 
the  greater  element  of  uncertainty  in  wholesale  credits. 
The  present  attempt  to  get  retailers  to  give  trade  accept- 
ances is  another  evidence  of  the  same  uncertainty  regarding 
the  status  of  wholesale  credits.  Wholesale  credits,  again, 
are  different  from  retail  in  that  they  are  relatively  fewer  in 
number  and  larger  in  amount.  A  department  store  will  have 
anywhere  from  fifty  thousand  to  two  hundred  thousand 
accounts,  while  a  large  jobber  will  seldom  have  one-tenth 
the  number.  This  makes  it  easier  for  the  retailer  to  operate 
like  a  life-insurance  company  on  the  law  of  averages.  Then, 
too,  retail  credit  is  generally  personal  credit,  whereas  whole- 
sale credit  is  firm  or  corporate  credit.  It  is  a  well-known 
fact  that  personal  credit  is  guarded  more  zealously  than 
firm  or  corporate  credit.  In  wholesale  credits  liquid  assets 
are  the  big  factor  to  consider.  The  retail  credit  man  who 
bases  his  judgment  on  liquid  assets  is  inviting  poor  business 
and  turning  down  good  business.  The  retail  credit  man 
must  at  the  outset  realize  the  fundamental  difference  be- 
tween retail  and  wholesale  credit  and  get  the  proper  basis 
for  retail  credits  rather  than  try  to  operate  his  credit  system 
like  a  wholesaler. 

In  a  wholesale  business  credits  are  the  customary  thing. 
The  retailer  who  buys  of  a  wholesaler  is  judged  according 


THE    REASON    FOR    CREDIT 

to  his  character,  his  capacity  for  earning,  and  his  liquid 
capital.  In  a  retail  business  the  consumer  is  given  credit 
when  such  credit-granting  may  help  the  retailer's  business 
by  increasing  the  consumer's  purchases.  Therefore,  retail 
credit  is  based  upon  the  immediate  advantage  which  such 
credit-granting  will  bring  to  the  retailer.  If  such  credit- 
granting  will  result  in  further  net  profits  to  the  retailer, 
it  is  desirable.  Liquid  assets  cannot  be  a  major  factor,  for 
consumers  are  seldom  in  business  for  themselves  and  have 
no  need  for  liquid  capital.  Nor  is  character  of  prime  im- 
portance, for  there  are  certain  types  of  customers  who  buy 
large  amounts  at  good  profits  to  the  retailer,  who  are  not 
models  of  character.  Yet  every  large  city  jeweler  or  woman's 
tailor  has  many  such  accounts  and  finds  them  profitable. 
So  again  the  standards  of  wholesale  credits  are  not  appli- 
cable, but  capacity  to  pay  promptly,  or  eventually,  is  requi- 
site in  either  wholesale  or  retail  credits. 

The  reader  must,  therefore,  avoid  being  biased  by  the 
usual  credit  standards  of  a  wholesaler.  He  must  find  out 
what  makes  for  success  in  retailing,  how  much  of  this  is 
the  resultant  of  good  credits  and  collections,  and  then  build 
up  retail  credit  and  collection  policies  and  systems  on  that 
basis. 

When  an  Expense  Is  Not  an  Expense.  Successful  retail- 
ing is  a  difficult  job  because  it  depends  so  much  on  the  ability 
to  satisfy  and  handle  human  beings.  It  is  easy  to  stand- 
ardize the  action  of  a  machine  and  get  the  most  out  of  it. 
But  it  is  very  difficult  and  next  to  impossible  to  standardize 
the  activities  of  people.  Else  it  would  be  easy  to  apply  the 
principles  of  scientific  management,  which  have  done  so 
much  for  factory  management,  to  the  operation  Of  a  selling 
organization.  So  the  retailer  must  study  the  human  beings 
who  compose  his  clientele  and  find  the  motives  which  lead 

people  to  trade  in  his  store.     The  more  such  motives  he 

5 


RETAIL    CREDITS    AND    COLLECTIONS 

can  organize  to  help  him,  at  a  cost  less  than  the  resulting 
increase  in  profits,  the  more  successful  a  merchant  he  will  be. 

For  instance,  some  thirty  or  forty  years  ago  merchants 
began  to  realize,  by  spending  a  few  dollars  for  advertising, 
that  they  could  increase  their  sales  without  a  proportionate 
increase  in  expense,  and  so  increase  their  net  profits.  For 
the  same  reason  stores  spend  money  on  window  displays 
and  on  various  other  items  of  so-called  expense.  But  such 
" expenses"  are  not  " expenses"  in  the  usual  sense  of  the 
term  when  they  increase  the  net  profits  of  the  store  by  in- 
creasing the  volume  of  business  and  the  turnover.  Such 
expenditures  represent  an  investment  in  things  the  store 
sells,  including  service. 

A  credit  system  is  therefore  a  necessary  part  of  the  equip- 
ment of  all  except  the  cut-rate  store,  in  which  the  appeal  is 
to  the  flotsam  and  jetsam  of  the  community. 

Credit  Makes  Regular  Customers.  Every  merchant 
knows  that  it  is  the  repeat  business  which  pays  best.  Those 
who  buy  for  cash  buy  wherever  they  may  be,  and  go  from 
place  to  place  in  response  to  curiosity  or  attention  aroused 
by  the  advertising  of  startling  bargains.  The  credit  cus- 
tomer gives  her  entire  trade  in  a  given  line  to  one  store.  If 
she  does  not,  a  little  pressure  properly  applied  can  often 
induce  her  to  do  so.  She  gets  to  think  of  the  store  where 
she  has  a  charge  account  as  her  store.  She  trades  there 
regularly,  comes  to  know  the  clerks  and  the  management, 
and  gets  better  service.  The  management  knows  best  what 
her  needs  are,  and  in  every  way  the  result  is  to  the  mutual 
advantage  of  both  customer  and  store. 

Credit  Sales  Average  Larger  Per  Person.  For  compari- 
son visit  any  of  the  cut-rate,  cash-only  department  stores. 
The  store  is  filled  with  bargain-hunters  who  in  their  mad 
scramble  muss  up  large  quantities  of  merchandise  and  buy 

very  little.    The  customers  are  not  customers.    They  are 

6 


THE    REASON    FOR    CREDIT 

bargain-hunters.  The  average  sale  per  person  is  about  half 
what  it  is  to  a  charge  customer.  The  result  is  that  the  selling 
expense  is  vastly  increased  in  the  cash  store. 

Credit  System  Develops  Confidence  in  Store.  Every 
successful  merchant  is  so  largely  because  of  the  good-will 
which  he  has  built  up.  And  good-will  is  the  result  of  con- 
fidence. A  credit  system  is  a  big  factor  in  the  building  of 
confidence,  because  the  credit  system  is  predicated  on  square 
dealing  and  repeat  sales.  The  fly-by-night  merchant  and 
the  merchant  of  doubtful  ethics  never  give  credit.  They 
don't  trust  their  customers,  because,  being  dishonest  them- 
selves, they  must  get  their  money  at  the  time  of  sale  and 
hang  on  to  it.  The  straightforward,  square-dealing  mer- 
chant knows  that  he  is  giving  value  received  and  he  knows 
that  the  satisfaction  of  his  customers  will  lead  them  to 
treat  him  squarely — to  pay  for  the  goods  as  agreed.  The 
I-believe-in-my-goods-and-I-believe-in-you  attitude  is  a 
wonderful  developer  of  confidence  and  good-will. 

Credit  System  Lessens  Complaints.  Any  merchant  knows 
that  a  large  percentage  of  complaints  results  from  mis- 
understanding. "I  have  been  a  charge  customer  here  for 
years  and  I  just  knew  you  were  getting  the  special  order 
for  me  as  fast  as  you  could.  So  I  didn't  kick."  That  is  the 
attitude  of  the  customer  who  has  confidence  bred  of  years 
of  trading.  The  customer  who  has  paid  in  advance  for  the 
goods  gets  panicky  at  the  first  little  delay  in  delivery  or 
fears  that  the  goods  are  not  right.  She  starts  an  unneces- 
sary complaint;  at  least  unnecessary  if  the  cash  merchant 
is  honest.  She  does  so  because  she  has  no  evidence  of  his 
good  intentions.  Every  merchant  who  insists  upon  cash 
in  advance  is,  at  the  moment,  classed  with  the  merchant 
who  is  dishonorable.  For  the  dishonest  merchant  never 
gives  credit,  and,  therefore,  by  quick  converse  reasoning, 
the  merchant  who  insists  upon  cash  is,  when  something 

7 


RETAIL  CREDITS  AND  COLLECTIONS 

appears  to  have  gone  wrong,  at  once  thought  to  be  dis- 
honest 

Credit  System  Makes  Better  Merchants.  When  the 
merchant  gives  credit  it  is  because  he  has  faith  in  his  cus- 
tomers. That  faith  comes  from  knowing  them.  Now  simply 
knowing  them  better  makes  him  better  able  to  serve  them. 
In  fact,  one  of  the  greatest  sources  of  failure  in  merchandiz- 
ing is  a  lack  of  knowledge  of  the  needs  of  one's  community. 
But  this  faith  goes  further  yet.  Having  faith  in  a  group  of 
people  means  being  interested  in  everything  having  to  do 
with  the  welfare  of  that  group.  Such  a  merchant  is  anxious 
to  serve  them  hi  the  best  possible  ways.  He  studies  their 
needs  and  he  does  everything  in  his  power  to  merchandize 
for  them.  His  faith  in  his  people  leads  him  to  his  best  efforts, 
for  it  brings  to  him  a  realization  of  his  responsibility  as  a 
merchant. 

Credit  Customers  Understand  and  Appreciate  Being 
Charge  Customers.  Customers  realize  that  merchants  in- 
stinctively feel  this  greater  obligation  to  charge  customers. 
In  any  store  having  both  cash  and  credit  customers  the 
credit  customers  realize  their  preferred  position.  Some  cash 
customers  object  to  it.  They  feel  that,  on  the  contrary, 
they  should  have  the  preference.  Perhaps  so,  as  they  trust 
the  merchant  by  paying  in  advance,  whereas  he  does  not 
show  any  faith  in  them.  But  the  credit  customer,  by  ar- 
ranging for  a  charge  account,  confers  an  honor  upon  the 
store  by  expressing  a  desire  to  trade  there  regularly  and 
concentrate  his  purchases  in  that  store.  So  the  charge 
customer  is  entitled  to  special  consideration  over  the  cash 
customer  who  flits  from  one  store  to  another,  hunting  bar- 
gains and  using  twice  the  time  of  clerks  that  the  charge 
customer  requires. 

Cash  Store  Attracts  Poorest  Trade.     A  comparison  of 

department  stores  in  any  large  city  will  show  that  the  cash 

8 


THE    REASON    FOR    CREDIT 

stores  attract  the  cheapest  trade  and  that  the  credit  stores 
get  the  best  and  most  satisfactory  trade.  The  result  is 
that  cash  stores  soon  become  the  cheap  stores  of  the  town. 
Nor  is  it  necessary  to  assume  that  it  is  merely  a  class  dis- 
tinction; for  instance,  that  credit  is  all  right  for  the  best 
trade,  but  that  in  the  bargain-basement  cash  alone  must 
prevail.  There  are  several  large  city  stores  maintaining 
bargain-basements  in  which  a  form  of  credit,  adapted  to 
the  clientele,  is  provided.  Take,  for  example,  the  credit 
system  in  Wanamaker's  Down-stairs  Store.  The  purely 
cash  store  attracts  those  who  cannot  get  credit,  and  as  fast 
as  they  get  on  a  credit  basis  a  large  percentage  leave  the 
cash  store  for  the  store  having  a  credit  system. 

Credit  System  Improves  Selling  Service.  "I  always  go 
to  Smith's  because  the  clerks  there  know  me."  How  many 
times  have  you  heard  that?  Now  the  first  source  of  ac- 
quaintanceship is  in  connection  with  a  charge  account. 
Clerks  soon  come  to  know  charge  customers  because  they 
buy  more  regularly  and  because  they  are  more  at  home 
where  they  have  charge  accounts,  so  that  they  more  readily 
become  acquainted  with  the  clerks.  The  all-cash  store, 
on  the  other  hand,  is  a  cold  and  forbidding  public  warehouse. 
The  clerks  are  not  interested  in  customers,  nor  the  cus- 
tomers in  the  store.  There  is  little  in  the  store  to  attract 
the  customer  except  price.  The  tendency  of  the  store  is 
demoralizing  and  destructive  to  any  attempt  at  a  develop- 
ment of  esprit  de  corps  in  the  organization. 

Credit  System  Connects  With  Future.  After  the  bargain- 
hunter  has  paid  for  the  article  bought  at  a  cash  store  she  is 
ready  to  go  on  another  bargain-hunt  the  next  day  in  a 
different  retail  section.  She  is  a  creature  of  impulses,  re- 
sulting from  the  day's  advertisements.  The  next  day's 
advertised  bargain  in  Smith's  puts  out  of  her  mind  entirely 
the  bargain  she  got  yesterday  in  Brown's.  The  cash  mer- 

9 


RETAIL  CREDITS  AND  COLLECTIONS 

chant  is  out  of  business  every  night  and  must  start  over 
again  the  next  day. 

Credit  a  Customary  Convenience.  It  is  always  easier 
and  generally  more  sensible  and  profitable  to  row  with  the 
current  than  against  it.  For  generations  responsible  people 
have  been  accustomed  to  the  convenience  of  a  charge  sys- 
tem, and  he  is  a  wise  merchant  who  hesitates  long  before 
discarding  the  system.  Some  expect  it  because  their  pur- 
chases are  by  various  members  of  the  family,  while  the  pay- 
ments are  made  only  by  one  person;  for  such  it  is  a  great 
convenience  to  have  a  family  account.  Some  are  paid  only 
at  considerable  intervals — say  semi-monthly  or  monthly— 
and  they  buy  against  the  accruing  wages.  Such  people 
are  as  a  class  excellent  charge  customers.  Some  have  to 
wait  until  crops  are  harvested  and  sold.  Frequently  they 
must  wait  for  a  good  price  before  selling,  for  we  all  know 
that  if  every  farmer  sold  at  harvesting-time  at  harvest- 
time  prices  his  profit  would  be  very  low  and  markets 
demoralized. 

Credit  Required  by  Modern  Society.  Conditions  in  life 
have  changed  much  during  the  last  decade  or  two,  and 
these  changes  necessitate  corresponding  revision  of  busi- 
ness methods.  When  a  large  percentage  of  people  lived 
in  small  villages  and  went  to  market  daily,  cash  pay- 
ment was  not  so  difficult.  Now  women  live  at  a  dis- 
tance from  markets  and  shop  by  telephone.  Many  are 
engaged  in  some  form  of  occupation.  Especially  is  this 
true  during  war-times,  when  many  women  have  taken 
men's  places  and  are  active  daily  in  Red  Cross  or  other 
war  service.  Such  women  must  buy  by  telephone  and 
depend  on  the  grocer  and  the  department  store  to  deliver 
the  merchandise.  Cash  payment  under  such  circum- 
stances is  very  inconvenient.  Leaving  money  with  ser- 
vants to  pay  bills  is  demoralizing,  for  it  leads  to  petty 

10 


THE    REASON    FOR   CREDIT 

dishonesty.     From  every  angle  of  modern  life  credit  ser- 
vice is  becoming  more  and  more  necessary. 

Credit  Makes  Home  Accounting  Easier.  The  little  drib- 
lets of  cash  expenditures  are  the  ones  that  need  watching 
in  every  household.  In  the  home  where  all  purchases,  such 
as  those  with  the  butcher,  baker,  grocer,  department  store, 
and  the  like,  are  on  a  charge-account  basis,  it  is  much  easier 
to  keep  track  of  the  expenses  and  run  the  household  on  a 

idg^Jb  basis. 

a  Charge  Account  Lead  to  Extravagance?  Of 
course  it  is  commonly  said  that  a  charge  account  leads  to 
extravagance.  Probably  it  does  in  some  instances.  Yet 
cash  customers  frequently  buy  what  they  should  not. 
Witness  the  sales  on  Saturday  night  in  any  factory  town. 
Neither  having  the  cash  nor  having  a  charge  account  is  the 
real  motive  which  leads  to  a  purchase,  extravagant  or  other- 
wise. Rather  it  is  the  attractiveness  of  the  merchandise 
itself  and  the  way  it  is  advertised  and  displayed.  The 
customer  can  only  spend  what  she  earns,  and  the  merchant, 
if  he  wishes  to  be  a  social  reformer,  can  guide  her  in  her 
selection.  One  Boston  department  store,  for  instance,  is 
urging  its  customers  during  the  present  war-time  to  buy 
the  more  practical  garments.  They  realize  that  such  a 
step  is  the  real  wray  to  prevent  extravagance  and  that  any 
other  deterrent  is  unwise  and  uncalled  for. 

On  the  other  hand,  credit  helps  to  develop  character. 
Credit  standing  is  a  thing  which  can't  be  bought.  It  must 
be  earned.  It  is  the  net  result  of  a  man's  character  and 
ability.  Many  a  young  man  maintains  his  start  at  the 
crucial  moment  because  he  has  built  up  a  credit  standing 
with  the  local  tradesmen.  When  he  needs  to  borrow  at 
the  bank  his  standing  in  the  community  resulting  from 
having  bought  of  local  stores  on  credit  and  having  built 

up  a  credit  standing  in  the  community  will  insure  him  a 

11 


RETAIL  CREDITS  AND  COLLECTIONS 

favorable  hearing  at  the  local  bank,  even  though  he  may 
never  before  have  borrowed  of  the  bank. 

Credit  Saves  Customer's  Time.  Every  merchant  realizes 
that  under  the  ordinary  system  of  sales  checks  it  takes  less 
time  to  handle  a  credit  than  a  cash  sale.  One  store,  for  in- 
stance, supplied  credit  customers  with  books  of  gummed 
name-and-address  labels.  The  customer  hands  the  clerks 
a  label  and  is  gone.  Even  if  she  has  to  wait  while  the  clerk 
makes  out  the  name  and  address,  it  takes  much  less  time 
than  waiting  for  change. 

Perhaps  in  the  case  of  a  charge-taken  purchase,  it  may 
seem  that  a  charge  is  slower  than  cash.  But  with  a  modern 
telephone  authorization  system  a  charge  can  be  handled 
almost,  if  not  quite,  as  quickly  as  the  cash  sale  can  be  finished 
and  the  change  returned.  In  many  large  stores  clerks  are 
empowered  to  authorize  small  charge  sales  and  deliver  the 
merchandise  without  calling  in  the  credit  man,  floor  man, 
or  inspector.  Under  such  a  system  the  charge  sale  is  patently 
handled  more  quickly  than  the  cash  sale,  and  if  such  a 
system  can  be  operated  by  a  Fifth  Avenue  department  store 
in  New  York,  there's  no  question  about  the  feasibility  of 
the  plan  in  a  small  city  or  village  in  which  customers  are 
known  intimately. 

Credit  System  Is  Cheaper  Than  C.  O.  D.  The  average 
merchant  does  not  realize  the  amount  of  trouble  and  labor 
involved  in  a  C.  O.  D.  transaction.  A  special  system  is 
necessary  in  the  delivery  department.  In  a  large  store  the 
C.  O.  D.  room  frequently  requires  a  half-dozen  or  more 
clerks.  Add  to  that  the  extra  trouble  to  the  delivery  force 
in  connection  with  collections  and  the  duplication  from  the 
"send  overs"  resulting  from  the  fact  that  the  customer  was 
not  at  home,  and  he  begins  to  realize  the  expense  of  C.  O.  D.'s. 
Then  compare  this  with  the  credit  system  with  its  simple 

system  of  charging  and  later  collecting  the  money  due. 

12 


THE    REASON   FOR    CREDIT 

If  the  customer  is  at  home  when  the  delivery-wagon  ar- 
rives she  has  less  chance  to  examine  the  article  and  so  is 
less  likely  to  take  it  than  if  it  were  sent  on  a  charge.  The 
driver  is  in  a  hurry  and  cannot  wait  for  her  to  try  on  the 
garment  or  see  how  the  rug  will  look  beside  the  old  ones; 
so,  being  hurried,  she  sends  it  back.  Haste  never  was  con- 
ducive to  satisfactory  selling. 

Does  Credit  Add  to  Store's  Expenses?  Yes,  undoubted- 
ly from  1  to  2  per  cent,  on  the  average  for  the  losses  from 
bad  debts  and  for  the  expense  of  credit-granting  and  making 
collections.  It  should  not  be  over  one  and  one-half  per  cent., 
and  in  many  stores  it  is  less.  When  it  is  more,  the  fault, 
however,  is  due  to  bad  management  and  not  to  credit- 
granting. 

But  an  expense  is  not  a  net  expense  when  it  brings  in 
more  gross  profit  than  it  costs.  If  the  credit-granting  store 
can  increase  its  sales  through  its  credit-granting  privilege  so 
as  to  turn  stocks  more  rapidly  and  make  more  money,  then 
the  credit  system  is  producing  rather  than  dragging  and  it 
doesn't  matter  whether  it  costs  1  per  cent,  or  3  per  cent. 

Do  Cash  Customers  Pay  for  Credit  Losses?  At  first 
glance,  yes.  But  if  the  cash  customers  cause  a  similar  loss 
to  the  store  by  buying  a  smaller  average  amount  of  goods, 
and  by  running  up  heavy  expenses  for  C.  O.  D.  transactions, 
then  it  is  near  enough  to  an  even  break  to  pass  by  without 
further  discussion.  That  is  the  situation  in  most  well- 
managed  department  and  specialty  stores  operating  both 
cash  and  credit  systems.  Nor  does  the  cash  customer  get 
any  material  saving  by  going  to  a  strictly  cash  store,  for 
the  cash  department  store  is  not  operating  materially,  if 
any,  cheaper  than  the  neighboring  charge  store  catering  to 
the  same  class  of  trade. 

On  the  theory  of  the  saving  to  a  cash  customer  a  mer- 
chant should  price  his  merchandise  by  groups  of  customers. 

13 


RETAIL    CREDITS    AND    COLLECTIONS 

It  may  cost  5  per  cent,  for  clerk's  services  to  sell  one  cus- 
tomer and  10  per  cent,  to  sell  the  next  one.  Should  we  try 
to  put  a  cost-keeping,  stop-watch  system  on  each  sale  and 
make  our  prices  accordingly.  It  simply  isn't  feasible;  yet 
the  saving  of  one  customer  who  always  shops  promptly, 
never  returns  the  goods,  and  concentrates  all  her  pur- 
chases in  one  store  may  be  10  per  cent,  over  the  average 
expense.  That  would  be  a  real  saving  as  compared  with 
the  theoretical  saving  of  1  to  2  per  cent,  by  eliminating 
charge  accounts.  Storekeeping  cannot  be  done  on  that 
basis.  It  must  be  done  as  a  community  service  and  ac- 
cording to  the  law  of  averages.  If  either  the  charge  or 
the  credit  customers,  or  those  of  some  other  classification, 
such  as  those  who  shop  promptly  and  keep  what  they 
buy,  save  1  or  2  per  cent.,  it  must  be  lumped  with  the 
others  in  the  average.  And  it  is  quite  likely  that,  when 
everything  is  considered,  the  average  cost  of  serving  each 
customer,  charge  and  credit  alike,  will  be  uniform.  In 
fact,  in  a  well-managed  store  the  expense  of  serving  the 
charge  customer  is  likely  to  be  lower. 

Do  Cash  Stores  Make  Lower  Prices?  This  is  looking  at 
the  question  from  the  other  angle — that  of  the  customer. 
Cash  stores  advertise  that  doing  a  cash  business  enables 
them  to  make  lower  prices.  To  substantiate  this  they  offer 
"loss  leaders"  frequently  on  standard  and  well-known  mer- 
chandise. The  idea  is,  "You  see,  I  sell  the  well-known  - 
shaving-soap,  the  price  of  which  in  other  stores  is  twenty- 
five  cents,  for  eighteen  cents,"  implying  that  everything  else 
— known  and  unknown — is  correspondingly  priced  under  the 
market.  A  careful  comparison  of  prices  will  prove  the  fal- 
lacy of  this  implication.  Anyway,  merchants  are  not  hunt- 
ing for  chances  to  start  price-cutting.  So  this  argument  for 
a  cash  system,  even  if  it  were  valid,  would  be  of  little  interest 

except  as  it  may  serve  as  a  talking-point  for  advertising. 

14 


THE    REASON    FOR    CREDIT 

If  it  is  not  valid,  its  use  is  not  straightforward,  it  is  next  to 
dishonesty. 

Do  Charge  Accounts  Lead  to  Special  Demands?  This  is 
another  objection  on  the  part  of  the  cash  merchant.  It  is 
hardly  worth  considering,  for  it  is  an  acknowledgment  on 
its  face  that  the  merchant  is  afraid  his  customers  will  com- 
plain of  inferior  merchandise  or  of  poor  service.  Occasionally 
a  charge  customer  will  act  as  if  she  owned  the  store.  Con- 
siderable investigation  in  department-store  adjustment 
bureaus  would  lead  one  to  believe  that  charge  accounts  do 
not  encourage  unreasonable  demands.  The  charge  cus- 
tomer, who  centralizes  purchases,  is  entitled  to  a  bit  more 
consideration  than  the  bargain-hunter,  and  if  she  gets  it 
she  is  getting  only  what  is  due  her., 

Do  Charge  Accounts  Tie  Up  Merchant's  Capital?  This 
is  another  of  the  usual  objections.  Of  course  it  is  true  to  a 
certain  extent.  But  so  does  the  purchase  of  merchandise 
or  the  investment  in  advertising  or  displays.  Still,  it 
doesn't  matter  if  by  so  doing  the  merchant  is  enabled  to  do 
more  business.  Whatever  use  of  his  capital  helps  a  merchant 
draw  trade  and  increase  his  volume  and  his  turnover  is 
legitimate  and  desirable.  If  he  hasn't  enough  capital  to 
handle  his  business  properly,  then  he  should  raise  more 
capital  or  give  way  to  some  other  merchant  who  can  finance 
himself.  The  first  requisite  of  a  merchant  is  a  suitable 
capital  investment.  It  is  frequently  said  that  the  credit 
system  prevents  a  merchant  from  discounting  his  bills. 
If  he  has  only  half  enough  capital,  it  is  to  be  expected  that 
he  must  either  do  a  cash  business  at  first  or  take  all  the  time 
he  can  get  on  his  purchases.  Either  expediency  is  unfortu- 
nate, but  his  necessity  is  to  be  laid  to  the  inadequacy  of  his 
capital. 

Credit  System  a  Cause  of  Failure.     Undoubtedly  this  is 

true,  but  it  is  not  primarily  the  cause.    In  the  majority  of 

15 


RETAIL    CREDITS    AND    COLLECTIONS 

the  cases  the  real  cause  is  either  lack  of  capital,  so  that  the 
merchant  is  "operating  on  a  shoe-string/'  or  bad  manage- 
ment. In  either  case  the  sooner  the  merchant  gives  way  to 
a  better  manager  or  one  better  financed  the  better  for  him- 
self, his  community,  and  the  wholesaler  from  whom  he  buys. 

Credit  and  Years  of  Panic.  How  about  the  merchant 
who  has  considerable  amounts  out  when  a  panic  occurs? 
We  are  basing  our  discussion  on  thirty-day  credits,  not  six 
months  or  indefinite  extensions.  Panics  do  not  affect  con- 
sumers on  short  notice,  and  the  retailer  is  not  obliged  to 
continue  credit  to  those  who  no  longer  have  a  basis  for 
retail  credit.  So  there  is  really  no  reason  why  the  merchant 
need  be  caught  during  a  panic.  If  he  is  caught,  he  is 
caught  before  the  panic,  because  he  has  allowed  long  and 
unbusiness-like  credits.  This  fact  is,  however,  no  argument 
against  a  credit  system. 

Substitutes  for  Credit.  Some  think  that  credit-granting 
is  a  banker's  job  and  that  the  merchant  should  avoid  it 
for  that  reason.  They  would  organize  community  discount 
corporations  to  handle  all  the  credits  for  all  the  stores. 
The  plan  has  many  points  in  its  favor,  but,  like  other  social- 
istic schemes,  it  is  not  feasible — at  least  at  present,  for  the 
American  people  are  too  independent  and  too  individual- 
istic to  accept  it.  Their  pride  would  be  hurt,  just  as  the 
retailer's  pride  to-day  is  hurt  by  the  demand  that  he  sign 
trade  acceptances  for  each  purchase.  In  fact,  the  two  sys- 
tems are  practically  identical.  There  is  also  the  common 
objection  to  both — that  they  involve  too  much  clerical  work 
in  the  case  of  small  and  frequent  purchases. 

Another  substitute  is  the  deposit  account.  One  New  York 
cash  store  is  said  to  have  thirty  thousand  customers  who 
deposit  in  the  private  bank  which  it  maintains.  Purchases 
are  charged  against  these  deposits.  The  system  has  many 

things  in  its  favor.    It  suffers  from  the  bad  repute  of  private 

16 


THE    REASON    FOR    CREDIT 

banks  generally,  and  particularly  from  the  unpleasant  reve- 
lations in  connection  with  the  bankruptcy  of  several  other 
private  banks  in  department  stores.  In  the  particular  store 
where  it  has  been  successful,  accounts  are  solicited  only 
from  those  who  intend  to  purchase  regularly.  It  has  been 
in  operation  many  years  and  includes  a  profit-sharing  plan, 
in  that  4  per  cent,  is  paid  on  balances  and  2  per  cent,  on 
purchases.  The  success  of  the  scheme  is  therefore  due 
largely  to  the  rebate.  It  involves  as  much  expense  as  an 
ordinary  charge-account  system  plus  the  expense  of  a  bank- 
ing system  under  the  rigid  banking  laws  of  New  York  State, 
and  in  addition  it  requires  a  very  considerable  rebate  to  keep 
it  going.  At  once  it  is  apparent  that  this  form  of  cash  sys- 
tem is  more  expensive  than  the  ordinary  credit  system,  and 
is  very  unfair  to  customers  who  have  no  deposit  account. 

Another  substitute  is  in  some  form  of  rebate  or  trading- 
stamp.  Such  systems  figure  to  cost  from  2  to  3  per  cent, 
more  than  the  total  cost  of  a  charge  system,  including  all 
the  losses  for  bad  debts.  They  draw  some  cash  business, 
generally  from  those  who  pay  cash,  anyway,  from  prefer- 
ence or  necessity.  They  do  not  draw  out  cash  in  advance 
from  bad  risks.  It  takes  more  than  a  rebate  or  premium 
valued  at  2  to  3  per  cent,  to  be  really  effective  with  other 
than  those  normally  cash  customers.  And  of  course  there  is 
no  object  in  offering  it  to  those  who  do  or  must  pay  cash,  any- 
way, unless  the  merchant  feels  that  he  owes  such  customers 
a  rebate  for  paying  cash.  If  the  merchant  who  feels  thus 
would  study  minutely  his  costs  of  doing  business  he  would 
find  that  if  either  cash  or  credit  customers  in  a  well-man- 
aged store  are  entitled  to  a  rebate,  it  is  the  credit  customer. 

Credit  Business  Pays.  The  merchant  is  the  servant  of 
the  community.  By  granting  credit  judiciously  and  collect- 
ing as  he  should  he  serves  his  community  better  than  by 

insisting  on  a  strictly  cash  business.    He  runs  a  better  store, 

17 


RETAIL    CREDITS    AND    COLLECTIONS 

draws  a  bigger  trade,  turns  over  his  stock  more  promptly, 
and  earns  more  profit  for  the  store.  Quoting  Butler  Brothers 
in  their  New  Way  System  Book,  which  is  sent  to  variety- 
store  retailers  who  buy  of  them,  "When  a  store's  charge 
accounts  are  on  a  real  business  basis,  when  settlement  every 
thirty  or  sixty  days  is  rigidly  insisted  upon,  a  merchant  so 
situated  ought  to  think  twice  before  changing  over  to  a 
cash  system."  And  a  little  further  on  they  add,  "When  a 
retail  credit  business  is  done  properly  it  is  one  of  the  most 
pleasant  and  resultful  things  in  the  store." 


II 

THE   PROBLEMS   OF   THE   CREDIT   SYSTEM 

IN  'the  preceding  chapter  the  advantages  of  a  credit 
system  were  all  premised  upon  the  handling  of  credits  on 
a  real  business  basis  and  especially  upon  the  insistence  that 
accounts  be  paid  early  in  each  month  for  all  purchases  of  the 
preceding  month.  The  success  of  the  credit  man  is  shown 
in  his  ability  to  build  trade  through  a  credit  system  and 
through  the  record  he  makes  in  his  collections. 

Therefore,  in  considering  the  modern  methods  of  collec- 
tion and  credit  work  it  is  well  to  survey  at  this  point  the 
difficulties  in  the  way,  in  order  that  we  may  build  up  our 
credit  and  collection  system  with  these  difficulties  constantly 
in  view.  In  no  other  way  can  the  treatment  of  the  subject 
be  made  practical. 

What  a  National  Investigation  of  Collection  Records 
Shows.  Now  the  first  question  is  the  one  bearing  upon  the 
success  of  merchants  generally  in  collecting  promptly.  In 
an  effort  to  get  definite  data  on  the  percentages  of  money 
in  accounts  outstanding  on  the  books  of  various  retail  lines 
from  month  to  month,  the  Associated  Advertising  Clubs 
of  America  in  1914  appointed  an  educational  research  com- 
mittee to  compile  figures  from  several  thousand  stores  in 
the  various  lines  of  business  throughout  the  United  States. 
These  figures  are  based  on  the  month  of  November,  which 
is  considered  an  average  month.  In  1915  and  1916  the  same 

committee  conducted  the  same  research  on  an  even  more 
3  19 


RETAIL  CREDITS  AND  COLLECTIONS 


exhaustive  basis.  Chairman  Mac  Martin  of  the  committee  de- 
scribes the  manner  in  which  the  data  were  secured  as  follows : 


COLLECTIONS 

Fkrcent  of  accounts  on  booksOct$l  collected  during  Novl9l6 
By  Lines 


Here,  at  a  glance,  is  the  story  of  collections,  by  lines  and  by  federal 
reserve  bank  districts,  showing  the  percentage  of  accounts  outstanding 
on  the  books  of  retailers  October  31,  1916,  which  were  collected  during 
November.  The  grocer,  it  will  be  noted,  was  the  best  collector,  and 
the  druggist  the  poorest. 

How  People  in  Various  Parts  of  the  Country  Pay 

It  will  be  noted  that  collections  for  1916  showing  46.6  per  cent, 
of  outstanding  October  accounts  collected  in  November  failed 
to  indicate  an  improvement  over  the  figures  for  1915 — 50.7  percent. 

This  does  not  necessarily  mean,  however,  that  the  retailer  ex- 
tended a  bigger  line  of  credit.  It  means  that  he  was  not  pushing 
as  hard  on  collections. 

There  is  an  indication,  moreover,  that  the  average  retailer  was 
more  liberal  in  opening  new  credit  accounts.  Since  he  was  more 
liberal  with  those  already  having  accounts,  he  would  naturally 
be  more  liberal  in  the  other  direction,  too. 

The  variation  in  collections  in  the  several  federal  reserve  dis- 
tricts is  partly  due  to  local  crop  movements.  For  example,  in- 
vestigators in  the  Dallas  district  explained  that  the  unusually 

20 


PROBLEMS  OF  THE  CREDIT  SYSTEM 

good  collections  there  (53  per  cent,  of  October  31  accounts  were 
paid  by  the  close  of  November)  were  due  to  crop  money  which 
came  in  at  this  season. 

The  Effect  of  Easy-going  Collections .  With  sales  breaking  previous 
records  and  not  spurred  so  much  by  necessity  for  collecting  out- 
standing accounts,  retailers  were  poorer  collectors  during  November, 
1916,  than  the  corresponding  month  of  the  year  before. 

At  the  end  of  November,  1916,  only  46.6  per  cent,  of  all  accounts 
that  had  been  outstanding  at  the  end  of  October  were  collected, 
while  during  the  same  period  of  1915,  50.7  per  cent,  were  collected. 
The  map  and  the  table  reproduced  here  do  not  necessarily  mean 
that  the  retailers  were  more  liberal  in  extending  credit.  There  are 
no  returns  on  that  point. 

The  one  question  asked  was  to  gain  information  as  to  the  portion 
of  outstanding  accounts  which  was  paid  during  the  month. 

It  is  interesting  to  observe  that  the  Boston  and  Chicago  districts, 
with  the  lowest  percentage  of  collections  in  1915,  are  below  aver- 
age in  1916. 

Collections  were  best  in  the  Philadelphia  district,  it  will  be  noted. 

The  amount  outstanding  on  the  books  of  retailers  in  the  several 
sections  of  the  country  at  the  end  of  October  which  had  been  col- 
lected by  the  end  of  November,  stated  in  percentage,  was  as  follows : 

F.  R.  D.  1  —  Boston 43 

"       2  —  New  York 45 

"       3  —  Philadelphia 55 

"       4  —  Cleveland 49 

"       5  —  Richmond 40 

"       6  —  Atlanta 38 

"       7  —  Chicago 45 

"       8  —  St.  Louis 50 

"       9  —  Minneapolis 46 

"     10  —  Kansas  City 54 

"     11  —  Dallas 53 

'"     12  —  San  Francisco 51 

General  average 46 .6 

This  information  was  obtained  by  1,700  investigators  from  the 
books  of  retailers  in  all  sections.  This  is  the  third  year  the  com- 
mittee has  made  an  investigation  covering  the  index  month  of 
November.  The  merchants  who  gave  the  information  did  so  in 

21 


RETAIL    CREDITS    AND    COLLECTIONS 


•- 

3:81*1 

co^g  aw> 

I  111 

bfi1"4        O 

yn  CO    fl    O 


^  o> 


8  III 

' 


•Ssf  § 

«  o  «  § 


22 


PROBLEMS  OF  THE  CREDIT  SYSTEM 

confidence,  after  having  been  assured  that  no  individual  namea 
would  be  mentioned.  The  investigators  were  all  men  of  integrity 
being  either  members  of  the  educational  committee  of  the  Associated 
Advertising  Clubs  of  the  World  or  secretaries  of  commercial  clubs 
— men  who  in  their  daily  business  have  access  to  the  heads  of 
large  organizations,  and  men  who  realize  the  absolute  necessity 
fo  •  accuracy  in  such  figures. 

Each  dealer  was  asked  exactly  the  same  list  of  questions.  Each 
investigator  received  exactly  the  same  instructions.  In  sending 
in  their  final  reports,  investigators  often  commented  upon  the 
accuracy  of  the  answers,  saying  they  knew  the  dealers  personally, 
and  were  sure  the  information  was  correct.  This  was  the  question 
pertaining  to  collections.  "What  percentage  of  all  money  in 
accounts  on  our  books  October  31,  1916,  was  collected  during 
November?" 

In  order  to  establish  a  standard  for  the  entire  country  for  the 
use  of  other  dealers  as  well  as  bankers  and  credit  men  of  organiza- 
tions selling  to  dealers,  the  committee  has  asked  this  same  question 
of  all  the  merchants  interviewed. 

An  average  of  all  reports  for  the  United  States  showed  the  retail 
dealers  collected  50.71  per  cent,  of  all  accounts  on  their  books  at 
the  end  of  October  before  the  end  of  November,  1915,  and  46.6 
per  cent,  in  1916.  In  other  words,  half  the  average  retailers'  ac- 
counts run  more  than  thirty  days. 

The  average  collection  of  retail  accounts  outstanding  October 
31st  during  the  month  of  November  for  the  various  sections  of 
the  United  States,  expressed  in  percentages,  is  shown  in  the  chart 
reproduced  here. 

How  Retail  Lines  Collect.  In  the  six  lines  investigated  the  per- 
centages of  accounts  on  retailers'  books  October  31,  1915  and  1916, 
which  were  collected  during  November,  were: 

_1915  1916 

Grocery  stores 66.4  64.7 

Drug  stores 51 .2  39.5 

Department  stores 50 . 8  44 . 7 

Clothing  stores 49.2  41 .4 

Hardware  stores 47 . 1  46 . 6 

Jewelry  stores 45 . 3  41.3 

General  average 50.7  46.6 

23 


RETAIL  CREDITS  AND  COLLECTIONS 

As  might  be  expected,  necessities  are  paid  for  first,  and  luxuries 
later.  It  will  be  noticed  that  the  collection  of  accounts  outstanding 
do  not  in  any  case  fall  below  39.5  per  cent,  or  rise  above  67  per  cent. 

Department  store  Collections.  Department  stores  of  the  United 
States  are  collecting  50.8  per  cent,  of  the  accounts  which  are  on 
their  books  at  the  end  of  one  month  or  before  the  next  month  ends. 

There  seems  to  be  no  marked  established  areas,  except  that  de- 
partment stores  of  the  Western  states  seem  to  be  better  collectors 
than  their  Eastern  brothers. 

In  these  estimates,  as  said  before,  the  committee  has  attempted 
to  exclude  all  cash  business;  the  question  relates  only  to  accounts 
on  the  books  October  31st,  which  were  collected  during  November, 
1915,  are  as  follows: 

New  England  States 53 

Middle  Atlantic  States 67 

South  Atlantic  States 71 . 1 

East-South  Central  States 76 . 5 

West-North  Central  States 63.6 

West-South  Central  States 82.6 

Mountain  States 70.8 

Pacific  States 62 

Grocery  Collections.  The  average  grocer  in  the  United  States  col- 
lected during  November,  1915, 66.4  per  cent,  of  all  the  accounts  that 
were  outstanding  on  his  books  at  the  end  of  October.  This  applied  to 
old  accounts  as  well  as  those  contracted  during  the  month  of  October. 

The  figure  exceeds  the  proportion  of  collections  in  any  other  line 
and  exceeds  the  50.7  per  cent,  average  for  all  six  lines  in  the  United 
States  15.7  per  cent. 

Reports  of  grocers  by  geographical  sections  as  to  the  percentage 
of  accounts  due  October  31st,  which  were  collected  during  No- 
vember, are  as  follows: 

New  England  States 53 

Middle  Atlantic  States 67 

Southern  Atlantic  States 71.7 

East-South  Central  States 76.5 

East-North  Central  States 63.5 

West-South  Central  States 82.6 

Mountain  States 70 . 8 

Pacific  States 62 

24 


PROBLEMS    OF    THE    CREDIT    SYSTEM 

The  dangerous  credit  risk  which  has  long  been  recognized  in 
the  grocery  trade  must,  therefore,  be  caused  by  factors  other  than 
the  retarded  collection  of  accounts. 

Clothing-store  Collections.  "What  portion  of  your  accounts  out- 
standing at  the  end  of  October,  1915,  were  collected  by  the  end  of 
November?" — that  question  was  asked  of  representative  dealers 
in  men's  clothing  everywhere,  and  some  interesting  facts  came  from 
the  question. 

It  should  be  borne  in  mind  that  the  same  general  results  should 
obtain  as  to  collections  in  a  number  of  other  lines. 

The  results  showed  that  in  1915  the  average  clothing-store  col- 
lected 49.2  per  cent,  of  its  outstanding  accounts  during  the  month 
following. 

It  must  be  borne  in  mind  that  collections  by  the  clothing,  jewelry, 
and  hardware  merchants,  on  account  of  the  size  of  the  bills,  would 
probably  vary  more  than  those  of  the  grocer. 

Canadian  clothing-stores  in  the  few  cities  investigated  report 
40  per  cent. 

In  connection  with  this  report  of  the  state  of  collections,  it  should 
be  borne  in  mind,  also,  that  the  clothing  trade  reported  collection 
six  points  above  normal  in  the  various  cities  into  which  the  in- 
vestigation reached.  The  combination  of  the  two  results  should 
give  credit  men  a  clearer  impression  of  what  standard  clothing- 
store  collections  are. 

The  question  as  to  the  outstanding  accounts  collected  included  all 
accounts,  whether  contracted  during  October  or  not.  The  reports 
by  clothing-stores  of  the  percentage  of  money  on  their  books  October 
31, 1915,  which  was  collected  during  November,  is  as  follows: 

New  England  States 39 

Middle  Atlantic  States 43 .8 

South  Atlantic  States 51 .9 

East-South  Central  States 41 .4 

East-North  Central  States 42.3 

West-North  Central  States 41 . 1 

West-South  Central  States 62 . 8 

Mountain  States 54 . 9 

Pacific  States 46 

Hardware-store  Collections.  The  typical  hardware  dealer  of 
the  United  States  had  collected  47.1  per  cent,  of  all  the  money 
owing  him  at  the  end  of  October,  1915,  by  the  end  of  November. 

25 


RETAIL  CREDITS  AND  COLLECTIONS 

In  no  general  section  of  the  country  did  hardware  collections 
average  as  high  as  56  per  cent.,  and  in  no  section  did  they  fall 
lower  than  40  per  cent.  In  some  cities,  as  shown  by  the  map, 
hardware  dealers  collected  as  high  as  80  per  cent,  or  90  per  cent, 
of  their  accounts.  In  a  very  few  cities  hardware  dealers  collected 
as  low  as  20  per  cent. 

System  Magazine  has  reported  that  the  typical  hardware  dealer's 
cost  of  doing  business  is  19.3  per  cent.;  his  bad  debts  .4  per  cent., 
and  his  gross  profits  for  one  turnover  32.2  per  cent. 

Nearly  half  of  the  hardware  dealer's  net  profit  is  made  through 
taking  cash  discounts  regularly.  The  percentage  of  accounts  out- 
standing at  the  end  of  October  which  hardware  dealers  collected 
in  November  in  the  several  sections  of  the  country  showed  the 
following  averages: 

New  England  States 43 .8 

Middle  Atlantic  States 44.8 

South  Atlantic  States 51.7 

East-South  Central  States 52.9 

East-North  Central  States 40.9 

West-South  Central  States 53 . 2 

West-North  Central  States 46. 1 

Mountain  States 55 . 1 

Pacific  States 45.7 

Drug-account  Collections.  The  druggists  of  the  United  States 
collected  during  November,  1915,  51.2  per  cent,  of  all  the  money 
on  their  charge  accounts  at  the  end  of  October.  It  must  be  borne  in 
mind,  of  course,  that'a  great  proportion  of  the  druggist's  business  is  spot 
cash.  Druggists  of  the  different  sections  of  the  United  States  report 
the  average  percentage  of  the  total  amount  of  money  they  had  out- 
standing October  31, 1915,  and  collected  during  November  as  follows: 

New  England  States 45 . 7 

Middle  Atlantic  States 59 . 5 

South  Atlantic  States 43.4 

East-South  Central  States 61 .6 

East-North  Central  States 52 . 8 

West-North  Central  States 49.4 

West-South  Central  States 58. 1 

Mountain  States 43 . 9 

Pacific  States 53.2 

26 


PROBLEMS    OF    THE    CREDIT    SYSTEM 

Jewelry-store  Collections.  Leading  jewelers  of  the  United  States 
collected  45.3  per  cent,  of  all  accounts  that  were  on  their  books 
October  31,  1915,  during  the  month  of  November.  Jewelry,  con- 
sidered a  luxury,  often  sold  on  account,  and  one  of  the  lines  that 
move  comparatively  slowly  is  slowly  paid  for.  A  smaller  percentage 
of  outstanding  accounts  at  the  end  of  October  was  collected  by 
the  end  of  November  than  in  any  other  of  the  lines  investigated. 

Nevertheless,  it  may  be  a  surprise  to  many  to  know  that  jewelers, 
reporting  their  collections  only  slightly  in  excess  of  two  points  over 
normal,  are  able  to  collect  more  than  45  per  cent,  of  their  accounts 
each  month.  The  percentage  of  jewelry  accounts  outstanding  at 
the  end  of  October,  which  were  collected  in  November,  in  various 
sections,  was  as  follows: 

New  England  States 34. 1 

Middle  Atlantic  States 38.8 

South  Atlantic  States 37.6 

East-South  Central  States 47 .7 

East-North  Central  States 42.8 

West-North  Central  States 45.8 

West-South  Central  States 43 .2 

•  Mountain  States 51.2 

Pacific  States 34.2 

What  These  Figures  Show.  It  will  be  recognized  at  once 
that  these  figures  are  of  limited  value  only  and  that  they 
may  lead  one  to  erroneous  conclusions.  They  show  that 
about  half  of  the  charge  sales  made  in  October,  1915,  were 
not  paid  for  during  November;  in  other  words,  that  they 
ran  more  than  thirty  days.  They  do  not  show  how  much 
of  the  remainder  was  paid  early  in  December  and  how  much 
ran  more  than  sixty  days.  Therefore  the  figures  are  not  at 
all  conclusive. 

In  many  lines,  while  credits  are  supposed  to  be  on  a 
thirty-day  basis,  it  is  not  thought  advisable  to  follow  up 
closely  until  accounts  are  at  least  forty-five  days  old.  If 
this  is  the  policy  (and  that  there  may  be  good  reason  for 
such  policy  is  not  to  be  doubted),  then  it  is  no  reflection  on 
the  system  if  many  accounts  run  beyond  thirty  days, 

27 


RETAIL  CREDITS  AND  COLLECTIONS 

But  the  figures  are  interesting  and  valuable  in  that  they 
show  the  first  weak  spot  in  a  credit  system — a  tendency  to 
laxity  in  collections,  particularly  in  certain  sections  and  in 
certain  lines,  when  conditions  otherwise  are  good.  The 
recognition  of  this  tendency  will  point  the  need  of  carefully 
planned  credit  and  collection  policy,  and  is  not  a  reflection 
on  the  majority  of  merchants  who  collect  promptly.  It 
serves  as  a  warning  to  those  who  have  not  realized  the  im- 
portance of  good  credit  and  collection  methods. 

It  is  almost  inconceivable  that  so  useful  a  thing  as  credit 
should  be  so  abused  by  the  customers  of  the  average  retail 
store.  This  abuse  is  due  more  to  lack  of  system  on  the  part 
of  the  merchant  than  to  carelessness  on  the  part  of  the 
customer. 

As  Butler  Brothers'  New  Way  System  Book  puts  it,  "The 
bad-debt  skeleton  leers  on  90  per  cent,  of  the  retailers  who 
do  not  sell  for  cash.  This  is  not  because  the  retail  credit 
system 'is  inherently  wrong.  It  is  because  the  average 'mer- 
chant is  not  careful  enough  with  his  credits." 

Losses  from  Bad  Debts.  The  price  that  a  retailer  must 
pay  for  the  privilege  of  offering  credit  to  customers  is  the 
loss  from  bad  debts.  The  report  of  the  investigation  quoted 
in  this  chapter  might  have  gone  further  to  show  what  these 
losses  are.  It  has  been  estimated  that  bad  debts  in  the  course 
of  a  single  year  send  one  business  man  on  the  rocks  every 
twenty-four  hours.  These  failures  cost  the  country  fifty 
thousand  dollars  a  day.  But  forbidding  as  such  a  loss  may 
seem,  it  is  not  an  unreasonable  amount  when  compared  with 
the  advantages  secured  in  the  way  of  vastly  increased  volume 
of  business,  a  large  part  of  it  attracted  and  held  through  the 
offer  of  credit. 

Assume  that  a  store  is  selling  one  thousand  dollars'  worth 
of  merchandise  a  day  at  a  cost  of  doing  business  equal  to 
20  per  cent,  of  these  sales,  and  at  a  gross  profit  of  25  per 

28 


PROBLEMS    OF    THE    CREDIT    SYSTEM 

cent.  With  an  average  stock  on  hand  worth  thirty  thousand 
dollars  at  retail,  or  enough  to  care  for  thirty  days'  sale,  the 
store  which  has  goods  charged  to  customers  worth  an  ad- 
ditional twenty  thousand  on  credit  will  net  a  profit  of 

25  -  20 

-  X   360,  or  36  per  cent. 
30  -  20 

If  the  store  manager  allows  an  increase  of  goods  charged 
to  customers  on  credit  to  increase  to  thirty  thousand — 
thirty  days'  sales — his  net  profit  will  be 

25  -  20 

X  360,  or  30  per  cent. — a  drop  of  6  per  cent. 

30  -  30 

Credit  a  Merchandizing  Problem.  In  this  way  credit 
is  shown  to  be  a  problem  of  merchandizing,  just  like  any 
other  store  activity.  We  have  seen  that  when  a  store's 
customers  are  able  and  willing  to  pay  for  the  various  con- 
veniences of  store  service,  which  include  the  facilities  of  a 
charge  account,  the  merchant  must  pay  the  cost  hi  losses 
from  uncollectible  accounts,  at  the  same  time  that  he  takes 
fullest  advantage  of  the  added  convenience  of  a  credit  system 
to  increase  his  profit.  His  problem  then  is  to  maintain  a 
balance  between  safe  credits  and  a  maximum  volume  of 
sales. 

What  Is  a  Safe  Limit  for  Bad-debt  Losses?  While  it  is 
difficult  to  say  what  amount  of  loss  can  be  safely  taken  as 
a  result  of  bad  debts  because  of  the  variation  in  different 
lines  of  trade,  it  is  certain  that  there  are  bound  to  be  some 
losses  entailed.  Local  conditions,  trade  usage,  and  a  credit 
policy  generous  or  close  are  the  factors  which  help  to 
determine. 

Careful  investigations  conducted  for  the  purpose  of  fixing 

the  amount  of  reserve  in  cash  to  be  set  aside  from  sales  to 

29 


RETAIL  CREDITS  AND  COLLECTIONS 

offset  these  losses  show  the  following  percentages  of  total 
net  sales  of  one  thousand  stores  actually  written  off  as 
worthless : 

Furniture 1 .94 

Groceries 47 

Clothing 34 

Vehicles  and  implements 33 

Hardware 31 

Jewelry 21 

Dry-goods 21 

Department  stores 19 

Drugs 19 

Shoes 10 

An  Investigation  That  Determined  the  Figures.  The  re- 
sults of  such  an  investigation  published  in  the  Bulletin  of 
the  Graduate  School  of  Business  Administration  of  Harvard 
University,  on  "Management  Problems  in  Retail  Shoe- 
stores/'  showed  losses  from  bad  debts  over  a  period  of  six 
years,  throughout  the  United  States.  In  it  is  given  the 
lowest,  the  highest,  and  the  common  figure,  This  common 
figure,  being  the  one  found  in  the  largest  number  of  states, 
is  typical  for  the  shoe  trade,  round  which  the  experiences  of 
all  retailers  center.  It  is  one  that  may  be  used  as  a  standard 
with  which  to  compare  results.  All  percentages  are  of  net 
sales. 

Group  selling  low-priced  shoes  (men's  shoes,  typical  $3,  $2.50, 
before  the  war) : 

Lowest  Highest      Common 

Losses  from  bad  debts 0.0  0.87          0.17 

Group  selling  medium-priced  shoes  (men's  $3  to  $6,  typical  $4; 
women's  $3.50  to  $7,  typical  $5  before  the  war) : 

Lowest        Highest      Common 

Losses  from  bad  debts 0.0  1.2  0.17 

30 


PROBLEMS    OF    THE    CREDIT    SYSTEM 

Group  selling  high-priced  shoes  (men's  &6  and  up,  typical  $7; 
women's  $7  and  up,  typical  $8  Before  the  war) : 

Lowest         Highest      Common 

Losses  from  bad  debts 0.0  1 . 34  0 . 85 

Shoe  departments  of  department  stores  (cities  of  3,000  to  700,- 
000): 

Lowest         Highest        Common 
Losses  from  bad  debts 0.01  0 . 26  0.1 

Bad-debt  Losses  the  Price  Paid  for  Greater  Volume  of 
Business.  It  will  be  seen  that  the  losses  written  off  from 
uncollectible  accounts  in  a  well-managed  store  run  one  half 
of  1  per  cent.  When  compared  with  the  store's  expenses 
for  advertising  at  from  3  to  4  per  cent.,  however,  the  price 
paid  for  additional  convenience  in  the  form  of  credit  accom- 
modation offered  to  its  customers  and  through  which  the 
store  is  able  to  add  materially  to  its  list  of  regular  patrons 
is  good  merchandizing.  It  will  bring  in  more  business  in 
proportion  and  add  it  more  permanently  to  the  store's 
regular  patronage  than  the  expenditure  of  the  same  amount 
in  the  best  advertising  that  can  be  written. 

Fixing  a  Credit  Policy  That  Will  Build  a  Store's  Business 
at  Minimum  Loss.  With  the  many  undoubted  advantages 
of  a  well-planned  credit  and  collection  system  working  in 
a  store's  interest,  on  one  hand,  and  a  shrewd  eye  on  the  un- 
avoidable losses  to  keep  them  down  to  normal,  on  the  other, 
double  emphasis  falls  on  the  store's  credit  policy  to  make  sure 
that  it  is  carefully  planned  and  wisely  administered.  To 
this  end  attention  is  directed  to  one  of  the  most  important 
factors  in  a  credit-granting  store's  success — determining  its 
credit  and  collection  policies. 


Ill 

DETERMINATION   OF  CREDIT  AND   COLLECTION   POLICIES 

"THIRTY  days  to  twelve  months."  Such  was  the  reply  of 
a  number  of  retailers  to  the  question  of  credit  policy  in  the 
survey  made  by  Mr.  H.  P.  Sheets,  secretary  of  the  National 
Retail  Hardware  Association.  Mr.  Sheets  says,  "Of  the 
1,839  dealers  reporting,  374  admit  having  no  regular  credit 
terms,  while  the  majority  of  others  fail  to  suggest  any  com- 
prehensive limits.  It  is  the  dealer's  duty  to  himself  and  to 
his  customers  to  have  definite  credit  terms;  to  have  these 
terms  clearly  understood  at  the  time  credit  is  granted,  and 
to  insist  upon  payment  at  the  time  agreed." 

The  survey  of  the  situation  is  shown  in  the  following 
chart  and  is  a  striking  evidence  of  the  result  that  comes  on 
credit  terms  and  on  other  factors  necessary  for  successful 
credit  and  collection  work. 

General  Preliminary  Considerations.  The  credit  policy 
to  be  adopted  for  a  retailer's  business  must  depend  upon  a 
general  analysis  of  the  store's  trading  territory  at  the  time 
it  is  opened  for  business. 

In  the  same  way  that  the  proprietor  decides  upon  the 
quality  of  goods  he  can  carry  to  best  meet  the  needs  of  the 
neighborhood,  the  prices  its  people  will  expect  to  pay,  or  the 
quality  of  the  store  service  they  will  demand,  so  he  must 
decide  certain  broad  questions  relating  to  his  credit  policy 
based  upon  the  needs  and  expectations  of  the  people  en 

whose  patronage  the  store  will  depend. 

32 


CREDIT    AND    COLLECTION    POLICIES 

The  Duty  of  the  Man  Deciding  Credit  Policies  to  the 
Community.  When  considering  what  credit  policy  to  adopt, 
the  retailer  is  obliged  to  consider,  first  of  all,  what  the  in- 
dividual customer's  viewpoint  is  likely  to  be  toward  the 
moral  obligation  he  assumes  when  he  asks  for  and  accepts 


CREDIT-TE^MS 

mmmmmmmmmmmm  2091   Questionnaires 
1859         Report  ing 


(  Variable  TVnms  Cause  Some  Aus.  To  Overlap) 


the  store's  credit  accommodation  as  a  part  of  its  service  to 
the  community.  In  a  general  way,  credit  is  the  use  we  make 
of  morals.  It  implies  mutual  confidence  in  the  honesty  of 
the  customer,  his  ability  to  pay  later  for  a  purchase  made 
to-day,  and  his  intention  to  do  so. 

The  retailer  knows  that  honesty  is  a  very  common  policy 
amid  surroundings  where  men  can  generally  be  depended 
upon  to  meet  their  obligations  if  doing  so  brings  no  hardship. 

He  realizes  also  that  it  is  when  the  payment  of  an  ac- 

33 


RETAIL  CREDITS  AND  COLLECTIONS 

count  means  self-denial  and  personal  sacrifice  that  men  are 
put  to  the  test. 

The  man  who  decides  the  store's  credit  policy  must  feel 
then  that,  in  addition  to  his  duty  toward  himself  and  toward 
the  individual  customer  whose  credit  standing  he  must 
judge,  he  has  a  broader  duty  as  well  to  the  community  at 
large  which  cannot  be  ignored.  Every  man's  example 
helps  in  some  degree  to  shape  his  neighbor's  creed.  While 
an  honest  man  is  an  asset  to  his  community,  the  unreliable 
man  is  a  liability.  If,  as  is  sometimes  charged,  credit  un- 
wisely given  has  a  tendency  to  encourage  over-buying,  and 
if  failure  to  follow  up  the  slow-pay  customer  reacts  unfa- 
vorably upon  those  who  never  fail  to  meet  an  obligation, 
then  it  will  be  seen  what  a  relentless  duty  there  is  upon 
every  retailer  in  the  community  to  grant  his  credit  and  col- 
lect his  accounts  promptly. 

Credit  Policy  in  Its  Relation  to  Other  Functions  of  the 
Business.  When  the  proprietor  of  a  store  organizes  his 
business,  raises  the  capital,  and  takes  the  initial  risk,  his 
chief  consideration  is  the  nature  and  the  extent  of  the  de- 
mand for  his  concern's  offering. 

Having  determined  this  in  a  general  way  and  having 
established  the  business,  he  either  contrives  to  carry  out 
the  details  of  the  operation  himself  or  he  delegates  to  others, 
his  partners  or  his  subordinates,  certain  of  these  functions. 
His  market,  its  character  and  requirements,  still  remains 
the  important  factor  in  operating  a  retail  store  as  it  was  in 
establishing  the  business  originally.  If  the  enterprise  suc- 
ceeds it  will  have  been  due  largely  to  the  manner  in  which 
the  store  has  been  able  to  carry  on  its  relations  with  people 
who  demand  its  goods. 

The  selling  function  of  the  business,  for  this  reason,  is  of 
first  importance  because  through  the  sales  force  it  has  its 

chief  contact  with  its  customers. 

34 


CREDIT    AND    COLLECTION    POLICIES 

In  the  same  way,  a  good  collection  system  is  a  source  of 
strength  hi  determining  the  success  of  the  business,  but  it 
must  meet  the  public  in  the  guise  of  an  adjuster,  rather  than 
a  promoter;  and  as  a  result  the  success  of  the  collection 
force  must  often  depend  upon  the  amount  of  salvage  which 
can  be  rescued  rather  than  upon  the  profit  on  the  account 
to  be  made. 

The  clerks  get  the  trade,  the  collector  gets  the  money. 
The  force  which  stands  between  is  the  man  at  the  credit 
desk,  who,  by  his  policy,  must  supply  the  judgment  neces- 
sary to  keep  sales  at  a  maximum  and  losses  at  a  minimum. 

Credit  Policy  in  Relation  to  the  Character  of  the  Business. 
In  adopting  a  credit  policy  for  a  store,  the  factors  which 
will  help  to  determine  it  are:  1.  The  character  of  the  busi- 
ness. 2.  Its  size.  3.  Local  conditions. 

It  is  easy  to  see,  for  example,  that  the  credit  policy  for 
a  retail  hardware-store  would  be  based  on  conditions  that 
would  not  hold  for  a  retail  grocery-store,  because  of  the 
fundamental  differences  in  the  goods  offered  and  in  the 
demand  for  them. 

Every  family  in  the  community  must  establish  some  kind 
of  a  contact  with  the  grocer  because  of  the  fact  that  every 
one  must  eat,  and  the  grocery-store  is  the  medium  through 
which  the  universal  demand  for  foodstuff  is  ordinarily  met. 

Since  every  one  in  the  community  of  good,  bad,  or  in- 
different standing,  as  far  as  reliability  goes,  will  patronize 
the  grocer,  it  will  be  seen  that  the  question  of  what  policy 
he  will  pursue  differs  from  that  of  the  hardware  man. 

A  hardware-store,  although  no  less  useful  a  servant  to 
the  community,  caters  to  a  less  universal  patronage — one  that 
is  more  seasonable  and  to  people  who,  compared  to  the  aver- 
age grocery-store  patron,  are  probably  better  off  financially. 
The  house-owner,  and  not  the  renter,  is  the  one  who  ordi- 
narily would  be  buying  kitchen  ranges,  fireless  cookers,  re- 
4  35 


RETAIL  CREDITS  AND  COLLECTIONS 

frigerators,  and  the  like.  It  will  be  seen  at  once  that,  while 
his  per  capita  sale  in  the  community  will  probably  not  be 
nearly  as  high  for  the  year's  business,  the  hardware  man 
will  probably  have  better  credit  risks  on  his  books  than  the 
grocer.  It  follows,  then,  that  his  credit  policy  will  differ 
also. 

Credit  Policy  in  Relation  to  the  Size  of  the  Business. 
For  the  purpose  of  comparison,  take  a  city  department  store 
and  compare  its  credit  problem  with  that  of  a  small  specialty- 
shop,  selling  to  a  much  more  restricted  class  of  trade  because 
of  the  fact  that  it  has  but  a  comparatively  few  lines  to  offer. 

It  will  be  readily  appreciated  that  the  larger  the  store,  the 
wider  its  patronage,  the  greater  the  influence  and  the  greater 
the  demand  for  credit  which  must  be  given.  It  follows, 
then,  that  a  larger  fixed  charge  can  be  allotted  for  the  main- 
tenance of  efficient  credit  and  collection  functions  than  would 
be  possible  for  a  small  store. 

The  specialty-shop,  on  the  other  hand,  would  probably 
have  comparatively  few  requests  for  credit  accommodation 
except  in  the  cases  of  old  and  well-known  customers  of 
tested  standing. 

In  either  case  it  is  easy  to  understand  the  effect  of  size 
on  the  credit  policy. 

Credit  Policy  in  Relation  to  Local  Conditions.  The  pro- 
prietor of  a  shoe-store,  opening  in  a  factory  community 
whose  customers  will  be  drawn  almost  entirely  from  people 
on  a  weekly  pay-roll,  cannot  afford  to  establish  credit  with 
individuals  except  on  certain  definite  limits  fixed  by  their 
earning  power.  Neither  can  he  content  himself  with  follow- 
ing the  department-store  practice  of  rendering  bills  monthly. 
He  will  render  them  weekly  and  follow  them  closely  with 
a  personal  collector. 

In  the  same  way,  the  proprietor  of  a  general  store  serving 

a  farming  community,  whose  revenue  is  dependent  upon  the 

36 


CREDIT    AND    COLLECTION    POLICIES 

returns  from  sales  of  produce,  will  find  it  necessary  to  ex- 
tend longer  terms  of  credit  tHan  the  city  stores  which  serve 
a  middle-class  population  working  largely  on  weekly,  semi- 
monthly, and  monthly  salaries. 

Whom  to  Accept  as  Credit  Customers.  No  country  mer- 
chant hesitates  to  extend  credit  to  his  farmer  neighbor  whose 
growing  crops,  though  still  unharvested,  give  abundant  as- 
surance of  their  owner's  ability  to  pay  his  bills  in  due  time. 
In  the  same  way,  the  small-town  retailer  or  the  department 
store  will  consider  the  salaried  person  whose  regular  income 
is  sufficient  for  his  wants,  and  who  lives  within  his  means, 
as  one  to  be  trusted.  This  is  especially  true  if  he  is  the 
head  of  a  family  and  as  such  a  permanent  member  of  the 
community. 

People  of  means,  but  who  may  not  have  present  command 
of  their  means,  are  ordinarily  entitled  to  credit.  The 
lumberman  who  is  waiting  for  the  spring  thaw  to  move  his 
logs;  the  ice  dealer  who  is  waiting  for  hot  weather  to  bring 
him  a  market;  the  contractor  who  is  bringing  a  job  to  com- 
pletion for  which  he  will  be  paid — these  are  classes  that  often 
need  and  may  safely  be  given  credit. 

On  the  other  hand,  people  of  intemperate  habits,  the 
gambler,  the  incompetent,  the  shiftless,  the  idler,  are  neces- 
sarily unworthy  of  credit  favors. 

A  rule  that  may  be  saf  ely  followed  is  to  put  the  burden 
of  proof  upon  the  credit-seeker,  assuming  that,  if  he  wants 
to  obtain  the  merchant's  goods  in  exchange  for  a  promise  of 
future  payment,  he  should  be  willing  to  state  on  what 
grounds  he  bases  his  expectation  of  being  able  to  pay  at 
the  time  agreed  upon. 

It  will  be  apparent  that  safety  in  granting  credit  depends 
largely  on  determining  accurately  the  condition  of  the  ap- 
plicant to  enable  the  merchant  to  judge  where  he  is  to  be 

classed  and  whether  he  is  to  be  trusted  or  not. 

37 


RETAIL    CREDITS    AND    COLLECTIONS 

Determining  Credit  Terms.  The  exact  conditions  under 
which  the  retailer  elects  to  extend  credit  will  be  fixed 
by  the  same  general  considerations  which  determine  the 
location  of  his  store,  the  quality  of  goods  he  carries, 
or  the  store  service  offered.  In  other  words,  his  credit 
terms  will  depend  on  the  conditions  prevailing  in  his 
neighborhood. 

There  was  a  time,  before  present-day  transportation  facili- 
ties made  it  possible  for  people  to  travel  readily  for  long 
distances,  when  it  was  not  unusual  to  have  settlements 
yearly  or  half-yearly.  In  the  same  manner,  because  the 
sale  of  crops  or  manufactured  products  was  not  always  as 
sure  as  it  is  now,  owing  to  the  difficulty  of  getting  goods  to 
market,  settlements  were  often  postponed  until  the  sale 
could  be  made. 

Modern  conditions  of  transportation,  together  with  the 
almost  instant  communication  possible  now  by  telephone 
and  telegraph,  added  to  the  growing  need  for  using  capital 
most  effectively,  have  made  thirty-day  settlements,  and 
less,  the  rule. 

How  Typical  Stores  Arrive  at  Credit  Terms.  Out  of 
1,839  retail  hardware  dealers  who  reported  to  investigators 
of  the  Hardware  Trade  Survey,  396  indicated  that  their 
customers  paid  by  "monthly  settlement,"  253  reported  terms 
of  settlement  of  "sixty  days,"  and  227  reported  "note 
settlements." 

High -class  grocery  concerns  like  Park  &  Tilford  or 
Charles  &  Co.,  New  York,  catering  to  customers  of  means 
in  wide  metropolitan  and  suburban  areas,  fix  terms  at  thirty 
days  as  the  most  universally  acceptable  and  at  the  same  time 
the  shortest  period  for  settlement. 

Factory-town  groceries  catering  to  wage-earners  largely 
on  weekly  pay-rolls  naturally  fix  upon  terms  weekly  to  coin- 
cide with  pay-days.  Frequently,  in  cases  of  stores  operated 

38 


CREDIT    AND    COLLECTION    POLICIES 

by  the  one-industry  towns  of  the  South  and  elsewhere,  in 
which  the  company  is  virtually  itself  the  storekeeper,  the 
amounts  on  credit  accounts  are  deducted  from  the  weekly 
pay. 

Charging  Interest  on  Overdue  Accounts.  An  effort  by 
retailers  to  standardize  terms,  and  to  prevent  losses  due  to 
slow  collections  from  mounting,  has  begun  in  the  movements 
by  the  Retail  Credit  Associations  favoring  an  interest  charge 
on  accounts  overdue  thirty  days. 

The  practice  is  one  that  has  been  only  partly  adopted, 
however.  By  some  merchants  it  is  used  purely  as  a 
penalty,  and  at  rates  as  high  as  10  and  12  per  cent, 
a  month. 

There  are  a  number  of  good  reasons  against  the  plan. 
Generally  speaking,  only  such  credit  methods  as  are  nearly 
universally  in  use  can  be  adopted  without  loss  of  trade.  If 
all  merchants,  in  all  places,  would  adopt  the  rule  suggested, 
it  would  be  beneficial.  But  in  the  case  of  small  accounts, 
the  monthly  interest  charges  would  not  pay  the  expense  in- 
curred; many  customers  would  ignore  or  forget  it,  as  they 
remit  by  check,  with  the  original  bill,  and  pay  little  or  no 
attention  to  statements. 

Again,  it  would  savor  of  usury  and  pecuniousness.  Cus- 
tomers having  large  accounts,  paid  regularly,  would  resent 
such  a  charge  if  their  bills  happened  to  run  over  the  thirty- 
day  period,  an  instance  often  due  to  absence  from  home,  ill- 
ness, death,  and  the  like. 

The  best  trade  is  the  most  sensitive.  Some  credit  men 
are  apt  to  think  only  of  getting  the  money,  and  lose  sight 
of  the  fact  that  it  costs  money  to  get  the  customer. 

As  in  the  case  of  the  hardware  dealers  who  make  use  of 
the  promissory  note  for  the  adjustment  of  overdue  accounts, 
many  other  lines  may  find  that  the  reasonable  request  for  a 

promissory  note  often  brings  the  check,  and  if  payment  is 

39 


RETAIL    CREDITS    AND    COLLECTIONS 

not  immediately  convenient  it  gives  to  the  customer  the 
comfortable  feeling  that  the  day  of  payment  may  be  agree- 
ably postponed  to  a  certain  time,  when  payment  "with  in- 
terest "  will  be  made  at  the  convenience  of  the  customer. 
It  is  as  easy  to  carry  the  amount  in  bills  receivable  as  in 
accounts  receivable,  and  eliminates  useless  friction  and  even 
loss  of  good  business. 

Determining  Collection  Policies.  The  test  of  a  successful 
collection  policy  is  one  that  gets  what  is  due  the  store  and 
yet  keeps  its  customers.  Collecting  money  is  like  selling 
goods.  It  involves  the  knowledge  of  human  nature  in 
general  and  a  knowledge  of  the  individual  debtor  and  the 
ability  to  select  the  method  that  works  best  with  people  of 
his  circumstances. 

A  grocer  who  insisted  on  collecting  his  bills  on  the  1st 
and  the  15th  of  each  month  noticed  that  one  of  his  new  cus- 
tomers was  two  weeks  in  arrears.  So  he  wrote  the  customer, 
reminding  him  very  curtly  that  his  account  was  running 
entirely  too  high  and  must  be  settled,  because  the  policy 
of  the  store  was  that  bills  must  be  paid  promptly  on  the 
1st  and  the  15th.  A  check  came  by  return  mail,  but  the 
grocer  never  sold  that  family  five  cents'  worth  of  merchandise 
again.  The  fact  was  that  the  customer's  wife  had  been  called 
away  from  home  by  the  sickness  of  a  relative.  Her  departure 
was  sudden.  The  maid  she  left  in  charge  of  the  house  was 
not  instructed  to  pay  the  grocery  bill.  Later  the  grocer 
learned  that  the  customer's  financial  standing  was  even 
better  than  his  own.  If  he  had  investigated  before  writing 
the  letter,  of  course  he  would  not  have  written  it. 

Depending  on  Letters  to  Collect.  The  mail  offers  so 
convenient  a  medium  through  which  to  present  bills  and 
statements  of  accounts  due,  and  for  talking  with  customers 
about  accounts  past  due,  that  letters  with  inclosures  natu- 
rally are  depended  upon  to  perform  most  of  the  work  of 

40 


CREDIT    AND    COLLECTION    POLICIES 

collecting.  The  use  of  the  mail  for  this  purpose,  then, 
opens  up  many  interesting  and  important  questions  of 
policy  that  must  be  carefully  worked  out  if  the  maximum 
of  results  is  to  follow. 

The  incident  of  the  grocer  who  wrote  a  curt  letter  without 
first  carefully  investigating  is  only  one  out  of  a  hundred 
possibilities  that  might  develop. 

The  subject  of  collection  letters  and  how  to  write  them 
is  important  enough  to  deserve  a  chapter  by  itself.  It  will 
be  more  fully  treated  later,  but  it  is  well  to  note  here  that 
the  policy  which  governs  the  collection  of  a  store's  accounts 
should  assure:  1.  Uniform  courtesy.  2.  Unfailing  prompt- 
ness. 3.  Consideration  of  the  individual  facts  in  the  case, 
if  collection  letters  are  to  be  successful. 

Using  Personal  Collectors.  The  mails  may  often  be  sup- 
plemented by  the  service  of  personal  collectors,  either  the 
store's  own  delivery  man  or  others  who  work  independently 
of  the  delivery  system. 

The  store's  policy  will  be  called  upon  to  determine 
just  how  far  it  can  afford  to  use  such  services,  what 
their  attitude  shall  be  toward  customers,  how  shall  their 
work  be  supervised  so  that  they  will  not  do  more  harm 
than  good. 

Should  the  Store  Sue  a  Customer  for  a  Delinquent  Ac- 
count? One  of  the  most  difficult  questions  for  the  retailer 
to  decide,  and  one  which  he  cannot  be  blamed  for  dodging, 
as  he  often  does,  is  the  question  of  how  far  he  should  go  in 
the  forcing  of  payment  of  money  due  him. 

In  the  interests  of  the  community  at  large  and  of  other 
merchants  as  well  as  himself,  he  cannot  afford  to  let  a  no- 
torious dead  beat  go  unmolested  and  openly  ignore  a  just 
debt. 

Every  consideration  of  justness  and  fairness  would  impel 

a  merchant,  after  making  all  reasonable  efforts  to  collect 

41 


RETAIL    CREDITS    AND    COLLECTIONS 

through  friendly  methods,  to  bring  such  cases  to  court  and 
exact  there  a  settlement  as  the  penalty  for  such  neglect. 

The  merchant  must,  however,  consider  the  effect  of  such 
action  upon  others  and  possibly  upon  his  business.  If  his 
claim  is  a  just  one — and  no  man  ought  ever  to  go  to  law  on 
any  other — and  free  from  prejudice,  then  he  should  have 
no  fear  of  results.  It  is  well  to  remember,  however,  that  the 
law  is  always  expensive  and  that  it  almost  always  entails 
a  loss  of  time  and  a  lot  of  bother,  to  say  nothing  of  a  sac- 
rifice of  good-will. 

Where  to  Get  the  Basis  for  Deciding  These  Questions  of 
Policy.  These  are  all  questions  that  must  be  reflected  con- 
sciously or  unconsciously  in  the  policy  of  the  house,  and  are 
to  be  interpreted  to  the  customer  in  his  daily  contact  with 
the  members  of  your  organization.  The  answers  to  such 
questions  are  to  be  found  in  the  customs  and  habits  of  doing 
things  that  have  developed  in  administering  the  day-to-day 
routine  of  business. 

There  is  a  constant  contact  first  with  old  customers — 
those  who  have  formed  the  habit  of  trading  year  by  year 
with  the  house  and  whose  continued  custom,  more  and  more 
valuable,  is  held  during  continued  satisfaction  and  good 
service. 

The  net  showing  at  the  end  of  the  year  is  directly  affected 
by  the  fairness  with  which  the  buying  limits  of  such  cus- 
tomers are  watched  and  the  care  with  which  apparent  de- 
linquencies are  investigated  and  checked. 

As  the  visible  means  for  putting  into  practice  whatever 
policy  may  have  been  developed  by  the  house,  much  will 
depend  upon  the  method  of  using  statements  of  account, 
the  use  of  form  letters  and  printed  inclosures,  or  the  use  of 
personal  collectors. 

Scarcely  less  vital  to  the  concern's  credit  showing  is  its 
policy  toward  new  customers.  No  matter  how  perfect  it 

42 


CREDIT    AND    COLLECTION    POLICIES 

may  be  in  its  store's  service,  its  merchandise,  or  its  treat- 
ment of  old  and  honored  patrons,  there  is  constant  need 
of  adding  new  accounts  to  replace  those  who  may  be  re- 
moved by  death,  by  the  constant  moving  and  changing  of 
people  and  conditions  in  a  locality,  by  the  losses  due  to 
delinquency  and  non-payment  of  accounts. 

And  nowadays,  when  the  credit  man  has  come  in  many 
stores  to  take  on  the  functions  of  a  business-builder,  this 
problem  of  systematically  building  new  accounts  to  a  maxi- 
mum volume  of  sales  consistent  with  minimum  losses  as- 
sumes new  importance  in  his  work. 

He  may,  by  a  combination  of  knowledge  already  in  his 
possession  as  credit  man  with  the  tact  and  keenness  of  a 
salesman,  show  a  decided  addition  to  the  volume  of  the 
store's  accounts  during  the  year,  offsetting  all  losses  for 
whatever  cause. 

Determining  Costs  and  Results.  While  the  individual 
merchant's  resources  determine  how  much  he  may  safely 
invest  in  credit  or  stock  in  his  customers'  homes,  the  average 
credit  department  costs  from  four-tenths  to  six-tenths  of 
1  per  cent,  of  the  net  charge  sales. 

This,  then,  is  the  price  that  is  ordinarily  paid  for  securing 
the  protection  of  credit  investigation  which  safeguards  sales, 
and  for  the  service  of  bringing  in  the  money  due,  and  thus 
keeping  losses  down  to  normal.  The  merchant  who  extends 
credit  to  his  customers  as  a  part  of  his  store's  service  looks 
upon  the  expense  of  maintaining  a  credit  department  as  a 
part  of  his  insurance — a  legitimate  charge  and  a  necessary 
expense.  He  utilizes  a  part  of  the  knowledge  and  experience 
gained  through  credit  work  to  help  steer  the  selling  and  ad- 
vertising departments  of  the  business,  in  his  buying  and 
management  problems. 

In  a  well-organized  store,  the  position  at  the  credit  desk 
is  far  from  being  the  place  for  a  mere  subordinate,  once  r$- 

43 


RETAIL  CREDITS  AND  COLLECTIONS 

moved  from  a  bookkeeper  or  a  routine  cog  in  the  store's 
machinery. 

Expense  Allowance  for  Maintaining  a  Credit  Office.  One 
feature  of  credit  work  not  always  understood  by  the  execu- 
tives of  a  business  is  the  expense  connected  with  the  secur- 
ing of  information  and  of  putting  it  in  shape  to  be  used  to 
advantage  in  the  business.  The  salary  to  be  paid  to  the 
head  of  such  a  function  of  the  business,  together  with  the 
total  annual  expenditure  for  information,  will  often  prove 
to  be  less  than  the  loss  from  one  account  which  has  been 
avoided  through  its  service. 

The  same  argument  could  be  applied  to  the  policy  of  fur- 
nishing the  credit  office  with  an  efficient  force  to  carry  on 
its  detail  work.  The  credit  man  in  charge,  after  all,  is  paid 
to  use  his  brains  and  not  his  hands. 

Collection  Expenses  Allowable.  The  average  cost  of 
operating  a  credit  department,  given  as  from  four-tenths  to 
six-tenths  of  1  per  cent,  of  net  charge  sales,  includes  that 
portion  of  the  expense  devoted  to  the  actual  collection  of 
accounts  as  well  as  credit  investigation  for  the  ordinary 
retail  store. 

Except  in  the  cases  of  stubborn  accounts,  where  the  mer- 
chant is  obliged  to  call  upon  the  services  of  the  collection 
department  of  the  local  retail  credit  association,  or  actually 
refer  claims  to  an  attorney  for  collection,  the  cost  of  col- 
lection for  accounts  need  not  figure  very  heavily.  Items  for 
postage,  printing  of  statements,  bills  and  letter-heads,  cler- 
ical help  in  typing  and  letter-writing,  proportionate  charges 
against  the  equipment  of  the  credit  office,  would  constitute 
the  chief  items. 

Credit  Losses  Allowable.  Investigation  based  on  close 
analysis  of  credit  figures  from  the  books  of  thousands  of 
stores,  after  allowing  for  unusual  local  factors,  gives  rough 

standards  for  gauging  retail  credits. 

44 


CREDIT    AND    COLLECTION    POLICIES 

The  following  percentages  .of  net  total  sales  refer  to  totals 
of  accounts  actually  written  off  as  worthless: 

Furniture 1 . 94 

Groceries 47 

Clothing 34 

Vehicles  and  instruments 33 

Hardware 31 

Jewelry 21 

Dry-goods 21 

Department  stores 19 

Drugs 19 

Shoes 10 

Variety  goods no  loss 

Statement  of  Typical  Policies.  The  president  of  the 
National  Association  of  Retail  Grocers,  drawing  from  an 
experience  of  twenty-five  years  in  the  business,  has  reduced 
his  credit  policy  to  the  following  eighteen  heads: 

1.  Know  your  customer  before  extending  credit. 

2.  Insist  upon  references  and  investigate  them  before  extending 

credit  to  strangers. 

3.  When  the  prospective  customer  hesitates  to  give  references 

hesitate  in  taking  the  order. 

4.  Explain  that  it  is  necessary  to  know  when  to  expect  payment 

in  order  to  meet  your  own  bills. 

5.  Show  that  by  paying  your  own  bills  promptly  in  ten  days  you 

are  able  to  sell  goods  more  cheaply,  and  by  paying  cash 
you  can  often  pick  up  bargains  which  you  can  pass  on  to 
your  customers. 

6.  Send  out  promptly  your  statements  every  week,  every  two 

weeks,  or  every  month,  according  to  the  understanding 
you  have  with  your  customers. 

7.  Insist  upon  full   payment  every  month,  and   request   your 

customer  to  call,  or  see  her  personally,  before  you  grant 
a  longer  extension  of  credit. 

8.  Do  not  let  your  customers  decide  when  they  want  to  pay  their 

bills.    That's  your  job. 

45 


RETAIL  CREDITS  AND  COLLECTIONS 

9.  Remember  that  the  possible  loss  of  a  few  customers  who  won't 
pay  promptly  is  offset  by  the  advantages  of  prompt  pay- 
ment. 

10.  Don't  be  satisfied  with  merely  a  financial  rating  on  a  customer, 

but  learn  something  of  his  character  and  general  reputation. 

11.  Study  your  customers  and  don't  trust  those  who  leave  a  bad 

impression. 

12.  Have  the  courage  to  say  "No."     Thousands  of  merchants 

have  lost  thousands  of  dollars  because  they  would  not  say 
"No." 

13.  Never  abandon  hope  of  collecting  an  old  account. 

14.  Try  the  method  of  sending  statements  only  to  your  surest 

customers.    Use  one  of  your  clerks  and  a  bicycle  for  the 
collection  of  all  other  accounts. 

15.  Personally  examine  every  uncollected  account  and  have  a 

reason  for  the  failure  of  your  customers  to  pay  promptly. 

16.  Help  to  eliminate  the  "dead  beat"  by  giving  careful  attention 

to  all  requests  you  receive  for  credit  information. 

17.  Boost  your  local  credit  interchange  bureau. 

18.  Make  sure  your  bookkeeping  is  accurate;   that  every  charge 

is  made  and  made  correctly.     Don't  let  your  customers 
first  discover  the  error. 

OUTLINE  OF  A  CREDIT  AND  COLLECTION  POLICY 
FOR  A  RETAIL  STORE 

Type  of  Customers  Action  to  Be  Taken 

Regular-paying  customers.  Monthly   bills,   statements,   or 

impersonal  reminders. 

Small  accounts.  Reminder  plans. 

(a)  Too  small  for  follow-up.         Pasters. 
(6)  Scattered  purchasers.  Inclosures. 

Handy    payment    devices   like 
coin-cards,  envelopes,  and  the 
like. 
Workers  on  salary.  Monthly  statement. 

Prompt  letter  follow-up. 
Personal  collection. 
Hint  of  taking  it  up  with  em- 
ployer. 
46 


CREDIT    AND    COLLECTION    POLICIES 

Type  of  Customers  Action  to  Be  Taken 

Wage-earners.  Week-end  statements. 

Printed  follow-ups. 
Personal  collectors. 
Hint  of  garnishment. 

Guaranteed  accounts.  Hints  to  warn  guarantor  if  not 

Minors.  paid. 

Married  women.  Refer  bills  to  guarantor. 

Men  without  property.  Locate  through  local  trade  co- 

Dead  beats.  operation. 

Transients  or  "skips."  Through  telephone  or  moving 

Local-trade  shifters.  companies. 

Through  electric-light  and  gas 

companies'  lists. 
By  registered  letters  and  at- 
torneys. 
Bring  quickly  to  legal  issue. 


Part    II 
ORGANIZATION    FOR    CREDIT    WORK 


IV 


THE    CREDIT   MAN 


Who  Is  the  "  Credit  Man"?  In  the  average  small  retail 
establishment  the  responsibility  of  deciding  whom  to  trust 
will  usually  be  found  merged  in  the  proprietor,  who  is  at 
the  same  time  doing  his  own  buying,  deciding  problems  of 
advertising,  merchandizing,  financing,  and  management. 

Under  such  conditions  it  is  only  natural,  then,  that  too 
often  the  details  of  looking  after  the  store's  credit  is  dele- 
gated to  the  store's  cashier-bookkeeper. 

How  Big  a  Job  Is  It?  While  it  must  be  allowed  that 
credit  authorization  may  often  be  only  a  clerk's  job,  in 
many  cases  the  granting  or  withholding  of  credit  at  the  right 
time  is  a  matter  calling  for  a  very  keen  kind  of  ability. 
Every  one  knows  how  easy  it  is  to  sell  goods  to  eager  buyers. 
It  should  be  added  that  buyers  who  do  not  intend  to  pay 
for  their  purchases  are  always  eager.  While  this  class  is  a 
hard  one  with  which  to  deal,  another  class  of  buyers  con- 
sists of  those  who  can  be  persuaded  to  order  goods  for  which 
they  intend  to,  but  cannot,  pay. 

The  store  proprietor,  if  he  could  give  his  full  attention  to 
the  task,  could  draw  upon  a  first-hand  knowledge  of  people 
and  conditions  in  his  community.  He  knows  that  success 
in  credit-granting  involves  an  accurate  knowledge  of  local 
business  conditions;  a  careful  selection  of  risks,  through  the 
collection  and  examination  of  credit  information;  constant 
5  51 


RETAIL  CREDITS  AND  COLLECTIONS 

supervision  of  accounts;  prompt  collection;  and  ingenuity 
in  handling  the  collection  of  stubborn  accounts. 

This  demands  that  the  credit  policy  and  practice  of  a 
business  should  be  under  the  supervision  of  one  of  the  ablest 
men  in  the  store.  If  the  business  is  large  his  whole  time 
should  be  given  to  the  work.  He  becomes  then  by  force  of 
necessity  a  specialist  in  credits. 

This  plan  has,  however,  disadvantages.  The  regulation 
credit  man  is  likely  to  feel  that  he  must  pass  upon  the  credit 
standing  of  the  buyer  in  a  purely  cold-blooded  way.  He 
has  been  taught  to  believe  this  through  the  artificial  system 
of  which  he  is  the  natural  product.  This  system  has  taken 
the  function  of  credit-granting  largely  out  of  the  hands  of 
the  proprietor  of  the  business  and  placed  it  in  the  hands  of 
highly  specialized  clerks  who  must,  as  a  rule,  very  quickly 
exercise  what  judgment  they  have  instantly  on  the  facts 
placed  before  them. 

Centralizing  Responsibility.  For  convenience  and  for 
strategic  reasons,  the  credit  man's  desk  should  be  close  to 
the  bookkeeper's,  and  all  purposes  are  best  served  by  having 
the  bookkeeper  under  his  direction  and  supervision.  He 
should  also  be  given  complete  charge  of  the  collection  of 
accounts,  and  the  machinery  for  getting  out  the  bills  and 
statements  promptly,  since  the  job  of  bringing  in  the  money 
due  is  the  logical  and  direct  purpose  of  the  credit  man's  ac- 
tivities. Even  in  stores  where  the  credit  and  other  office 
work  does  not  take  up  the  entire  time  of  a  good  man,  it  is 
best  to  have  what  work  there  is  of  this  nature  delegated 
specifically  to  one  man,  and  its  importance  is  such  that  some 
responsible  member  of  the  concern  should  be  in  charge. 

Difficulties  of  the  Work.  The  position  of  the  credit  officer 
is  one  difficult  to  fill  in  a  highly  creditable  manner.  He  is 
held  responsible  for  all  losses  from  bad  debts,  and  it  is  his 

duty  to  reduce  these  losses  to  the  lowest  practical  minimum. 

52 


THE    CREDIT    MAN 

To  do  so  he  must  refuse  all  dangerous  credit  transactions. 
At  the  same  time  he  must  not  be  so  free  in  his  refusals  as 
to  turn  away  desirable  business.  The  credit-granter  might 
reduce  losses  to  almost  nothing  by  refusing  every  order  of 
which  there  could  be  any  possible  doubt,  but  by  so  doing 
he  would  usually  destroy  a  considerable  part  of  the  business 
and  profits  of  his  concern.  The  credit  man,  therefore,  stands 
between  the  two  dangers  of  refusing  valuable  business,  on 
the  one  hand,  and  of  accepting  doubtful  business,  on  the 
other.  For  success  he  must  do  neither,  and  the  conducting 
of  his  work  in  such  a  way  as  to  accept  the  largest  possible 
amount  of  business  with  the  smallest  practical  minimum  of 
losses  requires  no  small  amount  of  judgment  and  ability. 

One  writer  on  credit  subjects  has  suggested  the  judging 
of  the  effectiveness  of  the  work  of  the  credit  man  from  the 
following  points: 

1.  How  much  does  he  lose  in  bad  debts? 

2.  How  much  does  he  lose  in  orders  rejected? 

3.  How  many  prospective  customers  does  he  turn  away  from  all 

future  sales? 

4.  How  many  present  customers  does  he  offend  or  lose? 

5.  How  much  of  the  expense  of  the  sale  and  advertising  efforts 

does  he  nullify? 

Personal  Attributes.  For  the  most  effective  conduct  of 
his  work,  the  credit-granter  will  find  use  for  the  most  varied 
personal  attributes.  He  needs  judgment,  and  he  needs  to 
be  polite  and  tactful,  both  in  writing  and  in  speaking.  Since 
the  information  that  he  seeks  in  his  conferences  with  his 
customers  is  intimate  in  nature,  the  customer  is  likely  to 
become  resentful  at  the  inquiry  unless  he  is  handled  carefully. 

The  credit  man  who  can  so  conduct  the  interview  to  secure 
the  required  information,  while  keeping  the  complete  good- 
will of  the  customer,  gives  proof  of  high  efficiency  in  his 

53 


RETAIL  CREDITS  AND  COLLECTIONS 

work.  The  same  situation  exists  no  less  where  the  trans- 
action is  by  correspondence. 

He  must  be  a  good  judge  of  human  nature — in  fact,  at 
times  almost  a  mind-reader.  The  personal  interview  with 
the  customer  is  his  most  important  source  of  credit  informa- 
tion, and  final  judgment  must  turn  upon  it 

The  man  at  the  credit  desk  must  be  quick  of  decision. 
Errors  of  judgment  will  necessarily  result  in  some  losses. 
If  it  secures  prompt  action  when  such  action  is  called  for, 
many  a  loss  will  be  prevented  where  hesitation  would  have 
been  fatal. 

The  credit  man  must  be  of  even  temperament.  The  man 
who  is  all  enthusiasm  one  day,  and  all  pessimism  on  the  next, 
will  give. his  work  the  bias  of  his  personal  feeling  and  mental 
condition,  instead  of  basing  them  on  solid  judgment  of 
business  conditions. 

Much  has  been  said  with  regard  to  the  intuition  developed 
by  the  man  who  handles  credits,  and  it  is  certainly  true  that 
with  wide  acquaintance  and  long  experience  he  becomes 
remarkably  accurate  in  his  judgments  and  decisions. 

Relations  With  Other  Departments.  The  credit-granter's 
work  has  a  very  close  relation  to  that  of  every  other  depart- 
ment of  the  business.  Unless  the  head  of  the  firm  is  in 
direct  charge  of  the  credit  function,  the  head  of  this  depart- 
ment should  be  given  power  and  authority  to  rank  with  that 
of  other  department  heads,  but  no  more. 

Difficulties  often  arise  because  the  authority  given  the 
credit  man  is  not  clearly  understood  by  all  concerned,  with 
the  result  that  clashes  in  authority  follow. 

There  are  some  credit  men  who  believe  that  their  author- 
ity should  be  absolute  and  that  no  one  of  equal  rank  in  the 
general  organization  should  question  the  decisions  of  his 
department. 

The  effectiveness  of  an  organization,  like  that  of  a  win- 

54 


THE    CREDIT    MAN 

ning  team,  does  not  result  from  placing  one  man  in  authority 
over  another,  or  from  denning  the  limits  of  each  man's 
powers,  as  much  as  it  depends  upon  getting  them  to  work 
together,  harmoniously,  for  a  common  purpose. 

It  is  doubtful,  for  example,  whether  hard  and  fast  rules 
could  ever  be  laid  down  to  fix  the  relations  of  the  credit 
man  and  the  buyers  or  department  managers.  They  can 
be  depended  upon  to  reach  a  good  working  basis  only  when 
each  tries  to  understand  the  other's  viewpoint  and  appreci- 
ates the  other's  problem.  The  capable  credit  man  realizes 
that  the  real  interests  of  the  selling  and  credit  ends  of  the 
business  are  identical.  He  knows  that  the  success  of  the 
house  depends  upon  the  profitable  sale  of  merchandise, 
and  he  realizes  that  in  the  effort  to  this  end  the  success  of 
every  one  interested  is  dependent  upon  the  success  of  the 
house  itself. 

The  Solar  Plexus  of  the  Business.  The  credit  man  should 
be  among  the  first  to  recognize  the  necessity  of  co-operation 
with  all  other  functions  of  the  business.  A  spirit  of  demo- 
cratic equality  and  interdependence,  rather  than  an  attitude 
of  isolation  and  superiority,  should  characterize  the  work 
of  the  credit  desk  in  its  relation  with  the  sales.  While  it 
may  not  be  quite  accurate  to  think  of  the  credit  desk  as  the 
brains  or  thinking  part  of  a  business,  because  it  takes  brains 
no  less  to  buy  and  sell  goods  and  handle  the  store's  people, 
it  is  not  too  much  to  liken  it  to  the  "solar  plexus." 

In  the  very  nature  of  things,  the  credit  desk  becomes  the 
natural  center  for  registering  all  the  information  that  will 
help  the  business  to  function  properly  in  serving  its  patrons. 
Complaints,  requests  for  adjustments,  allowances,  because 
they  come  up  naturally  in  connection  with  accounts  that 
are  to  be  paid,  find  their  way  to  the  credit  desk.  Short- 
comings of  service,  delivery,  quality  of  goods,  or  shortage 

of  shipments — anything  that  may  be  used  as  a  reason  for 

55 


RETAIL    CREDITS    AND    COLLECTIONS 

not  paying  an  account,  must  be  weighed  and  adjusted. 
Where  is  there  in  the  store's  organization  one  who  is  more 
logically  the  one  to  handle  them  than  the  man  at  the  credit 
desk? 

Since  his  job  is  to  do  all  possible  to  avoid  uncertainty — 
to  know  without  guessing — because  that  is  the  only  way  he 
can  hope  to  avoid  losses,  he  must  see  that  no  injustice  is 
done  the  customer  because  of  the  potential  value  of  his 
custom,  no  less  than  that  the  house  gets  a  fair  deal. 

Credit-granter  as  Salesman.  From  the  standpoint  of  the 
house,  the  sale  from  which  its  profit  comes  and  on  which 
its  life  depends  is  incomplete  until  the  actual  payment  is 
made.  In  the  average  store  it  is  not  unusual  to  find  this 
complete  conception  of  the  sale  overlooked. 

If  one  analyzes  the  work  of  credit-granter,  he  will  con- 
clude that  the  qualities  which  make  for  his  success  are  the 
same  as  those  required  for  a  good  salesman.  Take,  for 
example,  his  handling  of  the  interview  in  which  the  customer 
makes  his  application  for  credit.  The  credit  man  must 
do  more  than  satisfy  himself  that  it  will  be  safe  to  grant  the 
credit  asked.  He  must  "sell"  to  the  applicant  the  reason- 
ableness of  his  inquiry  made  for  that  purpose.  His  questions 
must  search  out  the  information  on  which  he  will  base  his 
decision  to  trust,  but  they  must  not  offend  nor  destroy  the 
wish  to  buy  at  the  store. 

The  clerk  who  has  worked  hard  to  make  a  sale  must  him- 
self be  thoroughly  convinced  that  his  work  is  worse  than 
wasted  if  his  customer  is  not  able  to  stand  the  credit 
man's  test. 

Nor  is  the  credit  man's  work  done  when  he  has  passed 
upon  a  customer's  credit  and  actually  succeeded  in  bringing 
the  account  to  balance  after  a  sale  or  two.  One  of  the  most 
important  functions  of  his  position  is  to  see  that  his  profitable 

accounts  are  kept  active,  that  they  are  not  allowed  to  lapse 

56 


THE    CREDIT    MAN 

after  they  have  been  opened.  There  are  a  great  many  men 
and  women  who  will  apply  for  credit,  and  to  whom  credit 
is  extended,  but  who,  after  the  account  has  been  opened  after 
several  months,  will  drift  away  from  the  store  where  they 
have  been  dealing.  Isn't  it  a  part  of  the  credit  man's  job 
to  investigate  the  causes  of  these  lapses?  The  causes  will 
be  revealed  in  his  data  files.  He,  better  than  any  other  in 
the  store's  organization,  is  in  a  position  to  suggest  the  means 
to  be  taken  to  make  these  accounts  active  once  more. 

Credit  Angle  on  the  Advertising.  Nowadays,  when  so 
much  thought  and  money  is  being  spent  in  the  effort  to  bring 
people  into  the  store  through  the  use  of  advertising,  it  is 
well  to  have  an  idea  of  the  effect  of  this  effort  on  prospective 
purchasers  as  a  class. 

You  have  seen  advertising  copy  so  direct  in  style  and 
wording  as  to  invite  over-buying.  Too  much  emphasis  on 
bargain  savings,  extravagance  in  language,  or  seeming  lax- 
ness  in  the  offering  of  a  store's  credit,  as  reflected  in  the  store's 
announcement,  may  have  the  effect  of  bringing  many  new 
applicants  for  credit,  who,  because  of  their  weak  financial 
or  industrial  position,  cannot  but  be  refused  credit  by  a 
conscientious  credit  man,  or  who  must  at  best  be  granted 
very  limited  privileges. 

The  credit  man  who  understands  the  store's  advertising 
problem,  and  who  is  given  the  opportunity  to  see  its  copy 
before  it  is  published,  should  be  in  a  position  to  save  much 
unnecessary  loss  of  time  and  save  the  store  from  unfavorable 
criticism  from  well-intentioned  but  financially  weak  patrons 
whose  requests  for  credit  have  been  turned  down. 

As  a  Trade  Investigator.  Garver  Brothers'  store,  doing 
$600,000  worth  of  business  a  year  in  Strasburg,  Ohio,  a  town 
of  1,000  population,  is  typical  of  the  many  which  are  enjoying 
the  patronage  not  only  of  the  immediate  community,  but  for 

miles  around.     They  built  a  most  profitable  part  of  their 

57 


RETAIL    CREDITS    AND    COLLECTIONS 

business  through  letters  and  announcements  and  circulars 
mailed  throughout  an  extended  section  of  its  surrounding 
territory.  The  results  from  the  adoption  of  such  methods 
are  directly  in  proportion  to  the  quality  of  the  list  of  names 
circularized.  The  credit  man,  with  his  equipment  at  hand 
for  securing  dependable  information  on  the  financial,  eco- 
nomic, or  moral  standing  of  individuals  in  a  given  territory, 
may  insure  the  campaign  against  failure  if  he  is  given  the 
chance  to  investigate  before  the  circularization  is  begun. 
Its  results  cannot  but  be  bettered  through  his  careful  classi- 
fication of  prospects,  circularizing  these  for  credit  and  can- 
vassing the  others  to  make  them  cash  customers. 

Successful  buying  to  meet  the  demands  of  a  store's  patrons 
must  of  course  depend  upon  an  accurate  knowledge  of  their 
tastes.  The  surest  measure  of  their  tastes  is  the  knowledge 
to  be  gained  from  the  credit  files  of  the  incomes,  vocations, 
and  personal  characteristics  of  its  customers.  The  shrewd 
buyer  will  not  underestimate  the  value  of  the  credit  man's 
help  to  make  a  study  of  the  store's  customers. 

Necessary  Qualifications.  There  isn't  a  man  anywhere 
in  the  rank  and  file  of  business  who  is  called  on  for  a  wider 
range  of  knowledge,  or  who  needs  a  larger  store  of  common 
sense  to  apply  this  knowledge,  than  the  man  at  the  credit 
desk. 

Not  a  business  day  of  his  life  passes  but  the  credit  man 
is  brought  in  contact  with  all  the  fifty-seven  varieties  of 
human  nature.  He  is  talking  or  writing  one  minute  to  a 
touchy,  but  honest, "  slow  pay"  and  the  next  minute  to  the 
crafty,  thick-skinned  individual  who  is  out  to  "do  the 
house." 

He  must  handle  each  of  them  and  hundreds  of  others  with 
the  most  delicate  strength.  He  must  not  make  mistakes  in 
judgment.  He  must  know  them  unerringly  and  choose  his 

language,  expressing  himself  pointedly  and  yet  tactfully. 

58 


THE    CREDIT    MAN 

His  personal  interviews  with  his  company's  customers 
must  be  conducted  with  all  the  finesse  of  a  capable  sales- 
man. His  letters  must  reveal  the  persuasive  art  of  a  trained 
correspondent. 

This  skill  in  dealing  with  people,  however,  is  only  a  part 
of  his  equipment.  Back  of  it  must  lie  real  sympathy  with 
the  customers  of  his  house,  and  real  understanding  of  their 
problems. 

He  cannot  afford  to  guess.  He  must  know  what  he  is 
talking  about.  He  must,  of  course,  be  thoroughly  grounded 
in  the  technique  of  his  job.  That  technique,  however,  in- 
cludes more  than  simply  the  checking  of  orders,  the  reading 
of  retail  credit  association  reports,  or  the  blind  acceptance 
of  ledger  experience  as  a  basis  for  turning  down  perfectly 
good  orders  taken  by  the  house  salesman. 

As  a  Business  Adviser.  The  credit  man  who  isn't  the 
best  business  friend  and  adviser  of  his  store's  customers  and 
its  salesmen  isn't  living  up  to  his  job. 

Being  an  analyst  and  an  interpreter  of  facts  and  impres- 
sions, he  has  trained  himself  to  accept  John  Smith's  state- 
ment of  his  reasons  for  asking  credit  in  the  light  of  his  own 
wide  experience  in  business.  Because  he  sees  clearly  at  a 
glance  what  is  back  of  each  statement  John  Smith  makes, 
he  can  put  his  finger  on  his  weaknesses  and  through  timely 
suggestion,  if  the  need  arises,  bring  him  back  to  a  proper 
regard  for  his  credit  reputation. 

Information  as  to  conditions  throughout  the  territory 
which  his  house  serves  keeps  pouring  in  on  him.  He  is 
rightly  expected  to  keep  his  eyes  open;  to  watch  the  spread 
of  business  troubles;  to  forecast  restriction  or  expansion  of 
bank  credits.  This  means  that  the  broad-gauged  credit 
man  is  a  student  of  economic  factors.  If  he  is  not,  he  is 
likely  any  day  to  be  caught  napping  in  the  path  of  a  financial 
storm  which  he  should  have  foreseen. 

59 


RETAIL  CREDITS  AND  COLLECTIONS 

No  credit  man  can  size  up  a  risk  or  handle  a  claim  properly 
if  he  is  seriously  deficient  in  his  knowledge  of  insurance  and 
real  estate,  of  shipping  and  commercial  law. 

The  worth-while  credit  man  is  a  big  factor  in  developing 
business  and  in  guiding  it  along  safe  and  profitable  roads. 

For  that  reason,  if  for  no  other,  there  is  no  job  more  likely 
to  produce  the  top  executives  of  any  business.  The  live 
man  at  the  credit  desk  has  a  wonderful  opportunity  in 
fitting  himself  to  handle  with  greater  efficiency  the  duties 
of  his  present  job,  and  to  gain  the  ideal  equipment  for  even 
larger  responsibilities. 


THE  FUNCTION  OF  THE  CREDIT-OFFICE  ORGANIZATION 

The  Office  System.  To  the  man  at  the  credit  desk,  any- 
thing but  a  sale  for  cash  comes  to  be  looked  upon  as  a 
gamble.  The  only  way  to  influence  the  odds  in  favor  of  the 
house  is  in  handling  the  credit  sales  so  that  the  uncertainty 
of  payment  may  be  reduced  to  a  minimum  after  it  is  made 
by  securing  reliable  information  on  which  to  base  a  credit 
decision  before  approving  the  order. 

Back  of  the  store's  credit-granting  authority  there  must 
be  a  " system" — an  organization  in  the  credit  office,  simple, 
accurate,  and  nearly  automatic — for  gathering  credit  in- 
formation and  using  it  to  check  the  judgment  of  the  man 
in  charge.  The  function  of  the  credit-office  organization  is 
to  carry  on  the  routine  work  of  gathering,  verifying,  and 
recording  information.  To  the  extent  that  the  man  in 
charge  can  plan  for  the  handling  of  this  mass  of  details  and 
then  develop  assistants  to  relieve  him  of  the  burden  of  taking 
care  of  them,  he  will  have  time  to  give  to  the  really  important 
decisions  requiring  the  best  there  is  in  him  and  on  which 
his  success  or  failure  and  that  of  the  business  may  depend. 

Details  Are  Important.  And  right  here  it  should  be  noted 
that  attention  to  detail  in  the  records  of  the  credit  end  of  a 
business  may  be  overdone.  When  detail  becomes  a  mania, 
larger  and  more  important  things  may  be  lost  sight  of.  On 

the  other  hand,  an  insignificant  detail  may  be  so  magnified 

61 


RETAIL    CREDITS    AND    COLLECTIONS 

as  to  unduly  prejudice  one's  judgment  of  a  risk.  Little 
things  sometimes  loom  large  as  side-lights. 

Take  an  actual  case.  A  man  living  in  a  large  town  where 
street  addresses  are  necessary  succeeded  in  running  up  a 
large  bill  at  a  grocery-store,  and  then  suddenly  left  town 
without  leaving  any  trace.  When  attempts  were  made 
through  the  local  credit  agency  to  find  him,  it  was  discovered 
that  during  all  the  time  he  was  trading  at  the  store  his  name 
had  been  spelled  incorrectly.  Letters  addressed  to  the  name 
on  the  store's  records  hadn't  a  chance  of  being  delivered 
and  possibly  he  had  never  even  received  a  bill.  In  another 
instance  a  customer  of  four  years'  standing  at  a  certain 
store  received  fully  fifty  monthly  bills,  but  not  one  of  them 
had  been  sent  to  the  correct  address.  The  bookkeeper  got 
the  address  wrong  in  sending  out  the  first  bill  and  kept  it 
up  afterward.  The  alert  postman  on  that  route  discovered 
the  error,  and  so  the  bills  reached  their  destination  each 
time,  but  if  the  store  had  lost  through  the  customer's  wish 
to  evade  payment,  who  would  have  been  to  blame? 

Clerical  mistakes,  due  nearly  always  to  the  carelessness 
of  the  clerks,  are  common  in  all  stores,  big  or  little,  but  they 
always  cost  money. 

Need  for  Centralized  Responsibility.  As  a  first  principle 
for  the  proper  organization  of  an  office  for  credit  work  the 
man  in  whom  is  placed  the  responsibility  for  results  must 
be  given  complete  and  unquestioned  control  in  all  matters 
relating  to  the  credit-and-collection  end  of  the  business. 

If  those  who  assist  the  credit  man  are  really  to  shoulder 
the  burden  of  detail  and  make  themselves  an  effective  part 
of  his  office  machine,  it  goes  without  saying  they  must  know 
the  concern's  business  thoroughly — its  policy  and  the  meth- 
ods used  to  put  this  policy  into  practice. 

What  the  Office  System  Should  Provide.     Any  system 

for  the  credit  office,  to  be  adequate,  should  include: 

62 


FUNCTION   OF    CREDIT-OFFICE   ORGANIZATION 

1.  Facilities  for  getting  and  filing  all  credit  information  in  such 

a  way  that  it  will  be  instantly  available  for  reference  by 
authorizers. 

2.  Facilities  for  quickly  noting  changes  of  condition,  address,  and 

the  like,  with  a  view  to  keeping  the  files  always  corrected 
up  to  the  minute. 

3.  A  system  of  recording  these  data  on  cards  in  the  files  so  that  the 

latest  information  will  always  be  available  for  quick  refer- 
ence. 

4.  An  automatic  danger  signal  to  check  overbuying  of  doubtful 

or  dangerous  risks. 

5.  A  definite  means  of  keeping  the  "promotion"  or  new  business 

department  constantly  informed  of  new  addresses,  deaths 
and  like  changes  which  would  affect  the  mailing-lists. 

The  Backbone  of  the  Credit  Organization  Is  Its  Files. 
Since  the  credit  office  deals  in  information,  it  follows  that 
its  files  are  the  backbone  of  its  system.  The  methods  used 
to  add  names  to  the  store's  files  of  credit  customers  and  to 
keep  accurate  record  of  the  constant  changes  in  their  files, 
vary  widely  in  detail,  according  to  the  line  of  business  and 
the  type  of  store,  but  conform  fairly  closely  in  general  prin- 
ciples. 

The  system  used  by  one  large  New  York  department 
store  will  perhaps  serve  best  to  show  in  a  general  way  what 
is  good  practice.  In  this  particular  store  the  system  of  the 
credit  office  is  based  upon  abnormal  transactions.  With 
many  thousands  of  accounts  to  handle,  no  department  sys- 
tem would  attempt  to  keep  close  supervision  over  the  records 
of  each  individual  account,  and  keep  up  with  the  demands 
upon  it,  especially  since  nine  out  of  ten  accounts  might  never 
call  for  such  attention.  As  a  matter  of  fact,  it  may  be  as- 
sumed that  it  is  the  tenth  account  where  a  change  of  condi- 
tion does  occur  that  needs  watching,  so  that  time  and  effort 
are  saved  and  true  efficiency  is  best  served  when  the  sys- 
tem is  directed  to  keeping  tabs  on  the  unusual  or  "abnormal " 

rather  than  upon  the  normal  accounts. 

63 


RETAIL    CREDITS    AND    COLLECTIONS 

One  Form  for  Many  Uses.  The  system  for  keeping  record 
of  the  credit  data  of  the  customer  is  a  single  form  made  out 
in  triplicate  by  the  store's  credit  man,  which  serves  any  one 
of  the  following  seven  standard  contingencies: 

1.  Customer's  change  of  address. 

2.  Change  of  name  (that  is  through  marriage  of  unmarried  women 

customers  or  death  of  the  husband). 

3.  Opening  new  accounts. 

4.  Closing  accounts. 

5.  Change  from  charge  to  cash. 

6.  Death. 

7.  Fixing  or  changing  credit  limit. 

Each  copy  of  this  form,  which  is  known  as  the  "customer's 
account  change  notice,"  is  made  up  in  triplicate,  padded,  and 
numbered  serially.  The  original  provides  spaces  for  the 
date  and  the  credit-file  number  which  is  given  each  account 
as  soon  as  it  is  opened  and  placed  on  the  books,  and  by 
which  it  is  always  designated  after  that  in  all  the  store's 
records. 

This  form  further  provides  spaces  for  the  following  in- 
formation: 

New  name. 

New  address. 

Business  address. 

Name  of  husband,  if  living. 

Name  of  wife,  if  living. 

Former  name. 

Former  address. 

Credit  limits — old  and  new. 

Then  at  the  bottom  is  provided  memorandum  space  as 
follows: 

Sent  to  Visible  Index  Writer  —  date  —  by  - 
Sent  to  Delivery  Authorizer  with  or  without  Visible  Index  Card  — 
Old  Visible  Index  corrected  —  Replaced  — 

64 


FUNCTION   OF   CREDIT-OFFICE   ORGANIZATION 
APPLICATION  FOR  ACCOUNT 


RATINGS  _ 

_  REPORT     No 


PLEASE  OPEN  AN   ACCOUNT  ON  YOUR  »OOK3  A8  FOLLOWS: 

NAME , 


BUSINESS 
ADDRESS. 


NOW  HAVE  ACCOUNTS  AS  FOLLOWS: 


REFERENCES: 


I  OWN  REAL  «STAT«  VALUED  AT  S AS  FOLLOWS 


ENCUMBRANCES: 


I    MAKE   THE    ABOVE    STATEMENT     FOR   THE     PURPOSE  OF  OBTAINING    CREDIT  ON   YOUR 
-TERMS.  WHICH   I    UNDERSTAND  TO   8!     MONTHLY  SETTLEMENTS. 


SIGNATURE. 


CUSTOMER  NOTIFIED 


65 


RETAIL    CREDITS    AND    COLLECTIONS 

How  the  Form  Is  Used.  New  Accounts.  This  original 
form,  unless  it  covers  an  application  for  a  new  account,  is 
referred  to  the  telephone  authorizer,  who  notes  on  it  the 
credit-office  file  number  and  at  the  same  time  corrects  the 
visible  index,  in  which  customers'  names  are  displayed  for 
daily  reference,  if  the  change  does  not  require  the  making 
of  a  new  slip  for  the  index  file. 

In  the  case  of  an  application  for  a  new  account  after  the 
desired  credit  information  has  been  requested  on  the  applica- 
tion form  which  is  reproduced  here,  it  is  sent  direct  to  a 
stenographer,  who  assigns  the  credit-file  number  and  at  the 
same  time  types  a  card  bearing  this  number  and  the  cus- 
tomer's name  for  the  master-index  file.  This  index  card  is 
held  in  a  hold-file  box  alphabetically  arranged  to  wait  until 
the  customer's  credit  limit  has  been  fixed.  Then  it  is  filed 
in  a  permanent  place  in  the  alphabetical  master-index  file 
of  the  department. 

The  stenographer  makes  up  from  the  original  application 
the  customer's  account-change  notice  in  triplicate,  one  a 
credit  office  copy,  another  for  the  bookkeeper,  and  the  third 
for  the  promotion  and  addressograph  bureau,  noting  the  credit- 
file  number  and  the  bureau  number  on  the  notice.  These 
notices  are  distributed  before  10  A.M.  the  following  morning. 

When  Changes  Are  to  Be  Made  in  the  Files.  If  the 
change  does  not  require  the  making  of  a  new  slip  for  the 
visible  index,  the  original  of  this  change  notice  is  sent  to 
the  delivery  authorizers,  the  duplicate  to  the  ledger  clerk, 
who  enters  accounts  receivable,  and  the  triplicate  to  the 
head  of  the  addressograph  bureau.  At  the  same  time 
the  original  form  is  placed  in  an  alphabetical  hold-file  in 
the  credit  office,  where  it  remains  until  the  corresponding 
copies  have  been  audited,  after  which  it  is  sent  to  the  credit 
files  to  be  placed  in  a  folder  or  jacket  with  other  papers 

relating  to  the  account. 

66 


FUNCTION   OF   CREDIT-OFFICE   ORGANIZATION 

CN7 

LIMIT  NOTICE 

DATE 

NAME ~ - ~« 

ADDRESS.... 


AMOUNT                       AMOUNT  OF 
OF  LIMIT....  ACCOUNT 


PURCHASES  BY  MONTH 
MAKING  UP  PRESENT  INDEBTEDNESS 

JAN'Y „. MAY SEPT „ 

FEB'Y JUNE.- OCT.... 

MAR „ JULY ,....Nov 1 

APR AUG DEC 

LAST  PAYMENT 
DATE AM'T.- *.„.-. 

6  67 


RETAIL    CREDITS    AND    COLLECTIONS 

If  the  change  notice  requires  the  making  of  a  new  visible 
index  slip,  the  original  is  sent  to  the  visible  index  writer. 
These  index  slips  are  typed  in  duplicate,  and  then  sent, 
respectively,  to  the  telephone  and  delivery  authorizers,  who 
post  them  immediately  for  reference. 

It  will  be  seen  that  this  system  is  based  on  the  principle 
that  it  is  expensive  and  unnecessary  in  the  handling  of 
thousands  of  accounts  to  provide  for  periodical  recheck- 
ing  of  each  account  unless  something  like  a  change  of  con- 
dition develops  to  affect  its  paying  quality.  It  realizes 
that  only  a  comparatively  few  accounts  will  change  condi- 
tion from  day  to  day.  It  provides  a  way  to  account  for 
abnormal  changes  only,  and  to  report  these  abnormal 
changes  automatically  and  surely,  making  certain  that  all 
department  records  are  changed. 

How  the  Bookkeepers  Help.  For  example,  the  book- 
keepers, having  been  notified  of  the  limits  set  on  every 
account  opened,  will  report  on  a  limit  notice  form  like  the 
one  shown  here,  the  cases  where  a  customer's  purchases 
have  exceeded  the  limit  fixed.  Based  on  this  notice,  the 
credit  man  will  be  warned  either  to  shut  down  or  extend 
limits,  as  the  case  may  be,  but  the  point  is  that  he  has  the 
benefit  of  such  a  notice  coming  automatically  from  the 
store's  accounting  records,  where  it  can  best  be  kept,  and 
without  the  necessity  of  himself  going  to  a  lot  of  trouble 
to  secure  this  information  direct. 

Very  often  if  the  customer's  purchases  in  such  a  case  have 
exceeded  the  limit  because  he  has  ordered  furniture  or  some 
such  class  of  merchandise,  he  will  pass  the  credit,  but  will 
close  the  account  until  some  payment  is  made. 

The  collection  routine  and  follow-up  usually  are  under 
the  credit  office's  supervision.  In  any  event,  the  collection 
department  should  make  it  a  point  to  check  outstanding 

accounts  each  month  and  report  to  the  credit  office  the  names 

68 


FUNCTION   OF   CREDIT-OFFICE   ORGANIZATION 

of  all  customers  in  arrears.  Jn  this  way,  also,  a  warning 
is  given  against  further  credit  to  doubtful  customers. 

Investigation  of  New  Accounts.  Within  twenty-four 
hours  following  the  interview  at  which  permission  to  open 
an  account  is  sought,  letters  are  written  and  posted  to  all 
out-of-town  references  given. 

At  the  same  time  credit  reports  are  requested  from  the 
local  credit  bureaus  or  agencies,  so  that  the  results  of  their 
ratings  may  be  available  at  about  the  same  time  that  re- 
plies are  received  to  letters  of  inquiry  and  investigators' 
reports  are  turned  in. 

Then,  with  information  available  from  all  immediate 
sources,  the  decision  whether  to  accept  or  reject  the  account 
can  be  made. 

Where  the  Credit  Office  System  Helps  or  Hinders  Ser- 
vice to  Customers.  In  these  days  of  keen  competition, 
when  every  retail  store  is  catering  especially  to  feminine 
approval  and  when  every  conceivable  line  of  merchandise 
of  interest  to  women  is  found  upon  its  shelves,  the  store  has 
a  special  interest  to  encourage  the  opening  of  charge  accounts 
with  the  right  kind  of  people. 

As  long  as  the  customer  pays  cash  for  her  purchases 
she  is  free  to  flit  from  store  to  store,  as  her  fancy  directs. 
The  store  has  no  hold  so  strong  as  the  convenience  of  a 
charge  account  to  keep  her  patronage,  but  the  hold  on  the 
charge  customer  is  effective  only  as  she  is  well  served  by 
the  store.  The  customer  seeking  an  account  at  a  retail 
establishment  expects  the  best  of  service,  the  most  cour- 
teous treatment  at  all  times.  The  reputation  for  service 
rendered  therefore  gradually  binds  its  satisfied  charge  cus- 
tomers to  the  store  until  they  become  a  real  part  of  it.  So 
long  as  they  continue  to  be  satisfied  with  the  service  given, 
it  is  difficult  for  a  competitor  to  lure  them  away. 

Convenience,  then,  and  courteous  treatment,  with  un- 

69 


RETAIL    CREDITS    AND    COLLECTIONS 

failing  promptness  and  reliability,  all  of  which  may  be 
described  as  store  service,  are  of  the  first  importance. 

This  favorable  impression,  if  it  is  to  be  lasting,  must  be 
registered  with  all  possible  conviction  on  the  mind  of  the 
credit-seeker  from  the  moment  of  the  first  interview  at  the 
credit  desk. 

The  Place  for  Credit  Interviews.  One  of  the  important 
details  that  must  not  be  overlooked,  then,  is  to  provide  a 
suitable  place  for  holding  these  interviews  with  applicants 
for  credit.  Since  in  most  cases  the  questions  asked  and  the 
answers  given  are  distinctly  personal  and  confidential  in 
nature,  the  credit  man  should  not  expect  his  applicant  to 
talk  frankly  in  the  hearing  of  others  in  the  office. 

In  order  that  the  applicant  may  feel  perfectly  at  ease, 
therefore,  the  credit  desk  should  be  placed  well  apart  and 
out  of  earshot  from  any  one  else  in  the  office.  In  the  best- 
appointed  stores  considerable  care  is  given  to  the  equipment 
and  arrangement  of  such  offices.  The  fittings  are  invariably 
of  the  best.  An  air  of  quiet,  cheerful,  refinement  usually 
pervades  the  place.  The  desk  at  which  the  credit  arbiter 
presides  is  usually  a  flat-top  set  in  the  center  of  the  room  or 
alcove,  with  a  single  chair  for  the  applicant  during  the  in- 
terview. 

Such  interviews  are  never  to  be  interrupted  by  the  store's 
employees,  in  order  that  there  may  be  nothing  to  disturb 
the  exchange  of  confidence  between  applicant  and  credit 
man,  who  is  thus  given  the  best  possible  opportunity  of 
sizing  up  the  risk. 

Many  stores  maintain  that  the  credit  man  should  go  to  the 
customer  and  talk  with  her  in  the  department  where  she  is 
making  her  first  purchases.  The  credit  man  can  call  the 
customer  aside  for  an  interview. 

The  O.  K.  Telephone  System.  Since  the  store's  repu- 
tation for  speed  and  accuracy  in  handling  customers  with 

70 


FUNCTION   OF   CREDIT-OFFICE   ORGANIZATION 

charge  accounts  depends  upon  its  ability  to  check  and  au- 
thorize purchases  quickly,  it  follows  that  the  equipment  of 
the  credit  office  extends  beyond  its  four  walls,  throughout 
the  store,  in  the  form  of  communicating  and  checking  de- 
vices which  make  up  what  is  sometimes  a  most  elaborate 
but  no  less  necessary  part  of  the  store's  service. 

In  departments  where  purchases  charged  and  taken  away 
by  the  customers  are  likely  to  be  most  common,  such  as  the 
notion  department,  the  men's  furnishings,  the  candy  de- 
partment, and  the  baking  department,  the  O.  K.  telephone 
system  has  proved  invaluable  because  it  helps  to  cut  down 
waits  and  delays. 

In  using  this  system  the  salesperson  places  the  charge 
check  in  an  electrically  operated  device  with  telephone  con- 
nection, and  calls  the  credit-authorizer,  to  whom  she  gives 
the  name,  address,  by  whom  purchased,  and  the  account 
of  the  charge.  If  the  account  is  open,  the  operator  pushes 
a  button  on  the  switchboard  which  authorizes  the  sales 
check,  in  the  department  where  the  purchase  is  made.  Not 
over  three  or  four  seconds  should  elapse  for  this  conversa- 
tion. At  once  the  package  is  given  to  the  customer,  who 
marvels  at  the  despatch  of  the  transaction  and  appreciates 
the  service  rendered. 

Another  method  of  handling  the  charge-check  is  by  pneu- 
matic tube.  The  switchboard  for  the  O.  K.  telephone  sys- 
tem is  located  in  the  same  room  with  the  tube  terminals, 
so  that  all  sales  checks  are  authorized  at  one  central  point. 
The  service  possible  with  the  dual  system  is  doubly  effective 
and  goes  a  long  way  to  please  the  customer. 

The  Pneumatic-tube  System.  A  pneumatic-tube  sys- 
tem, except  for  cash  registers  at  patterns,  notions,  men's 
furnishings,  and  hardware  departments,  is  also  quite  gener- 
ally favored.  Cash  sales  are  carried  in  gray-capped  purses 

which  are  opened  and  handled  in  a  basement  tube-room. 

71 


RETAIL    CREDITS    AND    COLLECTIONS 

Charge  sales  are  carried  in  red-capped  purses  which  are  re- 
layed in  the  basement  tube-room  to  the  credit  desk  in  the 
main  office;  or  there  may  be  a  credit  desk  in  the  tube-room. 

Bank  checks,  within  certain  limits,  are  approved  by  floor- 
men  and  department  managers.  Checks  not  so  approved 
are  sent  with  sales  checks,  via  the  tube-room,  to  the  mail- 
office,  in  red-capped  purses.  A  rubber  band  around  this 
purse  on  its  return  journey  signals  the  tube-room  cashier 
to  open  this  purse,  handle  sales  check,  and  forward  with 
change,  if  any,  to  the  clerk. 

Relation  of  Bookkeeping  to  Credit  Office.  Every  pre- 
caution is  taken  in  developing  the  business  of  a  well-directed 
store  to  gain  a  greater  protection  against  mistakes  by  the 
store's  people.  To  get  the  highest  degree  of  accuracy,  speed 
is  necessarily  retarded.  Good  results  are  increased  accord- 
ingly as  the  possibility  of  errors  is  eliminated. 

The  greatest  source  of  errors  is  in  the  bookkeeping.  As 
a  result,  many  merchants  feel  that  the  store's  bookkeepers 
should  rightly  be  controlled  from  the  credit  desk.  This  is 
probably  true  to  the  extent  of  prescribing  the  procedure  to 
be  followed  in  sending  out  bills  or  statements  on  customers' 
accounts,  rendering  reports  of  an  accounting  nature,  to  show 
results  of  collection  efforts,  and  to  speed  up  the  work  of 
entering  charges  and  crediting  remittances,  so  that  the 
exact  condition  of  all  customers'  accounts  may  be  always 
accurately  known. 

Accuracy  and  speed  in  the  store's  bookkeeping  are  so 
vital  to  good  credit-and-collectionwork  that  the  whole  system 
of  keeping  customers'  ledgers  may  be  considered  part  of 
credit-office  machinery. 

Using  Bookkeeping  Machines.  Thanks  are  due  to  the 
bookkeeping  machines  which  in  the  last  few  years  have  ren- 
dered great  help  through  increased  speed  and  accuracy. 

They  are  combinations  of  typewriter  and  computing  ma- 

72 


FUNCTION   OF   CREDIT-OFFICE   ORGANIZATION 

chines,  and  have  been  brought  to  such  state  of  perfection 
that  they  seem  to  have  almost  the  power  to  think.  These 
machines,  though  comparatively  new,  are  quite  generally 
in  use  in  the  larger  cities.  Some  not  only  typewrite  and  add, 
but  subtract,  multiply,  divide,  figure  discount,  automatically 
transfer  totals  from  one  column  to  another,  consolidate 
different  sub-totals  into  a  grand  total,  and  compute  common 
and  decimal  fractions. 

There  are  now  seven  machines  generally  in  use  for  this 
work.  The  Moon-Hopkins,  Underwood,  Elliott-Fisher,  Rem- 
ington, Ellis,  Burroughs,  and  Wales.  The  first  four  are 
combination  typewriter  and  computing  machines  and  may 
be  used  for  either  bookkeeping  or  billing  or  both,  while  the 
Burroughs  and  Wales  are  computing  machines  only,  and 
can,  therefore,  only  be  used  for  keeping  the  ledgers,  as  they 
have  no  typewriter  attachment  for  itemizing  the  bills. 

Posting  by  Machine.  The  modern  credit  office  uses  one 
of  two  fundamental  systems:  First,  posting  to  the  ledger 
and  billing  separately  from  the  ledger;  and,  second,  the 
making  of  the  bill  and  ledger  entry  in  one  operation.  The 
first  mentioned  is  the  older  and  the  one  more  commonly 
in  use.  The  larger  stores  of  Chicago  and  St.  Louis  are  using 
this  plan.  While  this  is  a  strong  argument  in  favor  of  system 
number  one,  it  is  not  conclusive  that  it  is  the  best.  Advocates 
of  it  will  tell  you  that  it  affords  greater  protection  against 
posting  to  the  wrong  account;  they  say,  also,  that  it  is  more 
simple,  thereby  making  it  possible  to  employ  less  expensive 
help,  which  is  easier  to  get.  They  also  claim  that  it  enables 
them  to  get  out  a  bill  that  is  simpler  and  easier  for  the  cus- 
tomer to  understand,  and  that  it  is  not  necessary  to  carry 
forward  the  previous  month's  balance,  provided  it  has  been 
paid,  which  is  necessary  in  system  number  two.  Many 
customers  object  to  this  carrying  forward  of  the  balance, 

but  advocates  of  system  number  two  claim  that  customers 

73 


RETAIL    CREDITS    AND    COLLECTIONS 

can  be  educated  to  understand  this  form  of  bill  as  readily 
as  one  built  on  system  number  one. 

Advocates  of  the  second  plan  claim  greater  economy  for 
it,  as  they  are  able  to  make  both  the  ledger  entry  and  bill 
at  one  operation;  they  also  maintain  that  the  bill  can  be 
rendered  more  quickly  at  the  end  of  the  month,  as  it  is 
finished  and  proved  at  the  time  of  the  last  entry — thus  en- 
abling them  to  tear  off  the  bill  and  mail  it  without  having  to 
be  reconciled  with  the  ledger,  as  under  the  first  plan.  There 
is  no  question  that  this  feature  offers  a  decided  advantage. 

The  next  question  to  be  considered  is  which  machine 
to  use.  It  is  a  difficult  decision  to  make,  for  each  has 
its  advantages  over  the  others.  None  seems  to  stand  out 
prominently  above  the  others  for  each  class  of  work,  and 
opinion,  as  is  indicated  by  the  variety  of  machines  in  use, 
seems  to  be  about  evenly  divided.  One  large  Chicago  store 
uses  the  Moon-Hopkins  for  bookkeeping  and  Elliott-Fisher 
for  billing.  Another  uses  the  Underwood  for  bookkeeping 
and  also  for  billing.  Still  another  uses  the  Underwood  for 
bookkeeping  and  the  Remington  for  billing. 

The  Office  Force.  It  need  scarcely  be  said  that  the  suc- 
cessful conduct  of  the  credit  office  requires  that  it  shall 
have  a  head  who  must  be  manager  hi  fact  as  well  as  in  name, 
and  whose  personality,  while  dominating  the  office,  does  not 
domineer  over  it. 

The  assistants  should  respect  the  head,  and  his  treatment 
of  them  should  be  such  as  to  merit  respect.  The  decisions 
of  the  manager  must  be  final,  his  judgment  deferred  to, 
and  the  results  accepted  as  fixed.  The  same  carefulness 
which  has  been  exercised  in  fixing  the  credit  policy  and  in 
picking  the  man  to  execute  the  policy  should  be  shown  in 
the  choice  of  his  assistants,  in  order  to  bring  the  entire 
force  up  to  the  same  high  plane. 

In  dealing  with  his  assistants  the  man  in  charge  of  a 

74 


FUNCTION   OF   CREDIT-OFFICE   ORGANIZATION 


APPLfCATION  FOR  CREDIT 

APPROVED  BY 

NEW  ORLEANS  RETAILERS  CREDIT  BUREAU 


NAME  

RESIDENCE  ADDRESS. 
BUSINESS 


MARRIED 


BUSINESS  ADDRESS — - — — 

WHAT  CAPACITY  EMPLOYED.  SALARY   $• 

UNDER  WHOM — HOW  LONG- 

AT  WHAT  LOCATION : — 

AUTHORIZED  TO  BUY  ; "     •  '  •'     '    • 


OWN  HOME    YES              OTHER  R/E. 
BANK  WITH  . — • 


REFERENCES 


AMOUNT  CREDIT  WANTED  $- 


DATE  ~ «9I 


SIGNED. 


CREDIT  BUREAU  REPORT 


HIGH  CR. 


PAYS 


REMARKS 


APPROVED 
CREDIT  OFFICE. 


RETAIL    CREDITS    AND    COLLECTIONS 

store's  credit  work  should  encourage  them  to  independent 
thought  and  action.  The  more  efficient  he  can  make  them 
as  thinking  elements  the  more  detail  he  can  shift  to  their 
shoulders,  thereby  lessening  his  own  burdens  and  leaving 
his  mind  free  for  more  important  problems.  It  is  a  great 
help  to  the  one  in  charge  to  be  able  to  discuss  with  his  as- 
sistants the  customers  and  their  accounts,  and  in  this  way 
awaken  interest  and  pride  in  the  success  of  the  department. 
The  courteous  and  liberal  attitude  of  the  credit  man  toward 
the  customer  should  be  the  attitude  of  the  office  force. 
The  customers  have  a  right  to  demand  this  consideration 
from  the  office  force  when  they  might  not  look  for  so  much 
from  the  head  of  the  department. 

The  man  in  charge  cannot  possibly  be  in  the  office  every 
minute,  but  his  work  must  go  on  continuously,  and  if  his 
assistants  are  properly  trained  in  the  policy  of  the  house 
they  will  be  able  to  assume  responsibility  when  he  is  absent. 

Forms  and  Blanks.  The  forms  and  blanks  used  in  the 
credit  office  should  be  as  few  and  as  simple  as  possible. 
The  mistake  should  not  be  made  of  using  a  form  of  credit 
application,  for  example,  with  too  long  a  list  of  questions 
to  be  answered.  Eighty-six  stores,  members  of  the  New 
Orleans  Retailers'  Credit  Bureau,  use  a  simple  form  like 
the  one  reproduced  here. 

Proper  forms  should  be  available  for  investigations  among 
the  trade  and  through  banks,  employer's  personal  references, 
landlords,  and  like  sources.  Typewritten  form  letters  will 
do,  but  printed  blanks  are  preferable  because  they  can  be 
handled  more  quickly  and  the  answer  filled  in  more  easily. 
With  the  blanks  designed  to  be  sent  to  others  in  the  trade, 
the  object  is  to  obtain  a  brief  record  of  ledger  experience 
and  whatever  information  the  answering  credit  man  may 
volunteer  with  the  least  trouble  to  the  person  from  whom 

the  request  is  made. 

76 


VI 

CO-OPERATIVE   METHODS   IN   CREDIT   INVESTIGATION 

THE  files  of  a  certain  collection  agency  in  a  Middle 
Western  city  contained,  in  1910,  the  name  of  a  credit  buyer 
owing  a  clothing-house  thirty-five  dollars.  This  man  held 
quite  a  responsible  railroad  position,  was  single,  and  com- 
manded a  salary  which  should  have  been  sufficient  for  his 
needs.  Within  less  than  a  year  after  that,  six  other  cloth- 
ing accounts  passed  through  the  same  files  with  the  same 
man  as  debtor. 

In  1914,  after  a  local  credit  bureau  had  been  organized 
and  the  same  debtor's  past  record  came  to  be  written  up 
for  the  purpose  of  fixing  his  credit  standing,  he  presented 
himself  to  his  next  victim,  only  to  be  turned  down,  and  was 
made  to  realize  that  he  would  have  to  mend  his  ways  or 
move  on.  The  services  of  the  bureau  has  resulted  in  an 
almost  complete  elimination  of  professional  dead  beats  in 
this  community. 

In  some  sections  retailers  offering  credit  still  eye  one 
another  with  distrust  and  refuse  to  divulge  any  ledger  in- 
formation, and  at  times  even  give  false  ledger  information. 
In  such  localities  co-operation  among  credit-granters  means 
nothing. 

There  the  professional  "hard  pay"  has  a  comparatively 

easy  time  of  it.    With  the  assistance  of  some  over-zealous 

77 


&ETAIL  CREDITS  AND  COLLECTIONS 

clerk  he  is  always  well  dressed  at  the  expense  of 
the  credit-granter,  who  had  no  way  of  getting  his  past 
paying  record  from  the  other  stores  or  from  a  bureau  or- 
ganized for  the  interchange  of  such  information  among  the 
merchants  of  the  district. 

Origin  of  Credit  Information  Service.  The  movement 
toward  co-operative  methods  in  connection  with  the  grant- 
ing of  retail  credit  is  comparatively  recent. 

Profiting  by  the  experience  of  wholesalers  who  were  the 
first  to  organize  co-operatively  for  a  closer  interchange  of 
information,  it  is  not  uncommon  practice  now  among  re- 
tailers in  a  community  to  organize  themselves  into  as- 
sociations and  bureaus,  national  and  local,  for  the  pur- 
pose of  exchanging  information  obtained  from  members' 
ledgers. 

Began  With  Needs  of  Wholesalers.  The  excellent  service 
rendered  by  the  large  mercantile  agencies,  like  Dun's  and 
Bradstreet's,  through  their  facilities  for  reporting  on  appli^ 
cants  for  credit,  has  served  to  show  what  can  be  done  in 
the  way  of  gathering  information  and  making  it  useful  for 
credit  purposes. 

Through  offices  located  in  all  the  important  cities  of 
the  country  where  information  is  collected,  the  wholesaler, 
the  manufacturer,  and,  to  a  more  limited  degree,  the  re- 
tailer, whose  market  is  extended  beyond  a  local  area,  may, 
for  the  payment  of  a  yearly  fee,  secure  prompt  and  accurate 
information,  including  a  record  of  the  business  and  personal 
character  of  their  customers  who  apply  for  credit. 

Why  Not  Dun's  or  Bradstreet's  for  Retailers?  The  re- 
tailer has  more  need  for  an  accurate  source  of  information 
of  the  same  kind  on  his  customers  than  the  wholesaler,  but 
he  has  been  obliged  to  build  up  his  own  means  of  supplying 
it.  This  has  been  necessary  because  in  most  cases  his  market 

is  local,  rarely  extending  beyond  the  immediate  neighborhood, 

78 


CO-OPERATIVE    CREDIT    INVESTIGATIONS 

and  because  he  deals  with  individuals,  while  the  mercantile 
agencies  are  national  in  their  scope  and  report  almost  ex- 
clusively on  firms  or  corporations. 

What  Retailers  Need — an  Exchange  of  Ledger  Experi- 
ence. The  main  element  which  is  lacking  in  the  service  of 
the  national  agencies,  however,  and  the  one  which  is  most 
needed  for  the  retailer,  is  not  the  applicant's  own  statement 
of  his  condition  and  fitness  to  receive  credit  offered  by  him, 
but  some  means  of  learning  from  other  retailers  in  the  same 
local  market  what  actual  experience  they  have  had  with  the 
same  prospective  customer — his  paying  habits. 

The  Development  of  Retailers'  Co-operative  Credit  and 
Collection  Bureaus.  Fifteen  or  twenty  years  ago,  credit 
exchange  bureaus  were  unknown  in  the  conduct  of  retail 
credit  business.  When  application  was  made  for  credit, 
the  merchant  generally  relied  upon  what  he  knew  of  the  ap- 
plicant, or  what  he  thought  he  knew  of  him,  in  extending 
credit.  It  is  true  that  there  were  in  existence  privately 
owned  rating  companies  who  gathered  such  information 
as  they  could  and  published  rating-books,  giving  their  opin- 
ions of  the  individual's  credit  standing. 

In  many  cases  the  information  was  old,  and  so  vague 
or  incomplete  as  to  be  of  little  value.  However,  credit  was 
not  as  freely  sought  in  those  days  as  it  is  now.  A  stranger 
seldom  approached  a  merchant  for  credit,  and  at  least  70 
per  cent,  of  the  business  done  by  a  store  was  for  cash.  Hence 
there  was  not  the  same  need  for  up-to-the-minute  credit 
information  that  there  is  to-day. 

When  a  customer  once  established  credit  with  a  store 
he  did  all  his  trading  there,  thus  giving  the  merchant  a 
chance  to  judge  his  ability  to  pay  the  account.  Now  he  has 
accounts  in  various  places,  and  while  he  may  not  exceed  the 
amount  he  would  be  entitled  to  receive  in  one  place,  in  the 

aggregate  he  may  go  far  in  excess  of  his  ability  to  pay. 

79 


RETAIL    CREDITS    AND    COLLECTIONS 

Changed  conditions,  advertising,  and  modern  ways  of 
doing  business  have  complicated  the  problems  of  to-day. 
Merchants  begin  to  realize  the  necessity  of  meeting  them, 
and  the  conviction  grows  that  it  could  best  be  done  by  co- 
operation. 

What  Co-operative  Bureaus  Aim  to  Do.  At  first,  mer- 
chants were  skeptical  of  the  plan  and  of  one  another,  feeling 
that  some  one  might  obtain  undue  advantage  over  other 
members.  With  the  real  test  of  use,  however,  the  plan  worked 
well,  and  members  soon  realized  the  value  of  a  record  of 
credit  customers  of  the  city  which  they  knew  to  be  based 
on  facts,  with  guesswork  entirely  eliminated. 

The  purpose  of  the  interchange  system  is: 

1.  To  provide  an  impartial  medium  between  debtors  and 
creditors  and  between  creditors  themselves. 

2.  To  establish  a  system  whereby  those  who  are  interested 
in  any  accounts  may  freely  and  unreservedly  interchange 
the  facts  contained  in  their  ledgers  without  the  necessity 
of  direct  reference,  each  to  the  other,  and  without  divulging 
their  information  under  their  own  name. 

3.  At  all  times  to  receive  in  exchange  for  items  contributed 
by  them  the  combined  experience  of  all  the  others  interested 
in  the  account. 

Ledger  experience  differs  materially  from  the  informa- 
tion supplied  by  the  ordinary  credit  agency,  for  the  in- 
terchange does  not  concern  itself  with  antecedents  or 
with  the  debtor's  character  or  reputation.  Such  an  in- 
terchange takes  account  solely  of  the  debtor's  recent  pur- 
chases and  payments. 

By  mutual  agreement  of  all  the  members  there  is  no 
seeking  for  information  by  one  direct  from  the  others.  In 
fact,  one  of  the  requirements  of  membership  is  that  there 
shall  be  an  absolute  refusal  to  furnish  ledger  information, 

except  through  the  credit  men's  bureau,  thus  relieving  the 

80 


CO-OPERATIVE    CREDIT    INVESTIGATIONS 

individual  houses  of  the  necessity  of  furnishing  the  same  in- 
formation over  and  over  again  in  different  forms. 

Organization  of  a  Retail  Credit  Bureau.  The  plan  on 
which  the  bureau  of  the  exchange  of  credit  information  is 
operated  is  simple.  These  bureaus,  usually  operated  as  a 
part  of  the  work  of  the  local  credit  men's  association  or 
the  chamber  of  commerce,  are  known  by  various  names  like 
the  "Retail  Credit  Bureau/'  "Merchants'  Protective  Asso- 
ciation," or  the  "Creditors'  Protective  Bureau." 

The  object  of  such  associations,  obviously,  is  to  act  as 
local  credit  clearing-houses.  In  this  way  the  "slow  pays" 
may  be  closely  checked.  A  man  who  owes  several  merchants 
and  who  is  slow  in  settling  may  find,  to  his  embarrassment, 
some  day,  that  he  can  no  longer  get  credit  until  he  has  settled 
with  the  stores  in  which  he  owes  accounts. 

Getting  Retailers  to  Agree  to  Finance  the  Bureau.  Each 
member  when  he  joins  the  Retail  Credit  Bureau  agrees  to 
stand  his  pro-rata  share  of  the  expense  for  maintaining  the 
service. 

In  some  instances,  a  flat  appropriation  of  twenty-five 
dollars  to  one  hundred  dollars  a  year,  as  the  needs  may  de- 
mand, is  levied  on  each  member,  payable  quarterly,  and  is 
included  in  the  association  dues,  to  cover  all  operating  ex- 
pense for  the  service. 

In  the  Cleveland,  Ohio,  bureau,  for  example,  the  retail 
credit  men  have  established  an  agency  of  their  own  which 
is  nominally  a  stock  corporation.  There  are  no  stockholders 
other  than  the  credit  men  themselves  and  the  firms  which 
employ  them. 

Retailers  Agree  to  Give  Data  to  No  Other  Agency.  In 
order  that  the  local  bureau  may  perform  the  greatest  possi-' 
ble  service  for  its  members,  it  is  customary,  in  organizing,  to 
agree  that  merchants  will  consent  to  open  their  files  and  give 

data  on  their  customers'  accounts  to  no  other  agency. 

81 


RETAIL    CREDITS    AND    COLLECTIONS 

This  is  found  to  be  necessary  and  advisable,  not  because 
individual  merchants  are  not  willing  to  promote  the  free 
interchange  of  such  information  through  other  bureaus, 
privately  owned  or  otherwise,  but  to  conserve  time  and  effort 
and  to  concentrate  all  the  credit-investigating  energy  in 
the  community  in  one  organization. 

Success  of  the  Bureau's  Records.  The  usual  plan  is  to 
distribute  among  members  of  the  association  cards  on  which 
may  be  entered  the  information  concerning  each  customer 
on  the  stores'  ledgers.  As  new  accounts  are  added  each 
week  or  each  month,  according  to  the  system  of  posting, 
additional  cards  are  turned  in  on  a  form  like  the  one  shown 
here  (Exhibit  A).  Members  are  not  asked  to  rate  these 
names  when  first  turned  in,  except  the  bad  ones  or  "require 
cash"  customers.  The  others  are  simply  entered  on  the 
master  card  with  his  membership  number  as  an  indication 
of  the  store  with  which  this  customer  is  dealing. 

EXHIBIT  A 


Folio  630 First  Name No.  3 

Name  Brown,  John  A. 

Residence  Address  —  1560  Pennsylvania  Avenue 

Business  Address  —  1056  16th  Street  —  Clerk 

Jewelry  Store 


82 


CO-OPERATIVE    CREDIT    INVESTIGATIONS 

The  master  card  (Exhibit  B)  is  filed  in  alphabetical  order, 
and  all  information  of  any  kind  is  entered  upon  it,  enabling 
the  clerk  in  charge  of  the  bureau's  files  to  give  the  customer's 
entire  record  without  having  to  refer  to  other  records  in  the 
files  except  in  special  cases. 

EXHIBIT  B 


Brown,  John  A. 


Residence  —  1560  Pennsylvania  Avenue 

Business  Address  —  1056  16th  St.  Clerk  —  Jewelry  Store 

( 
11/26/15  —  1520  Washington  Avenue 

Date  —  7/14—9/14—12/14—1/15—1/15—1/15—1/15—1/15 
Mem.   No.        3        10        15        75        7        5        15        10 

Rate         P.F.        P.        S. P.E.    G.E.    S.E. 

Folio  No.  630      75    B215          23      32      630    B215       75 


In  order  that  the  data  on  file  may  be  translated  into  a 
language  that  will  be  understood  by  all,  a  key  is  provided 
for  use  in  all  records.  The  following  is  the  key  devised  by 
the  Denver  Bureau  for  this  purpose: 

P Prompt  for  small  bills, 

PA Prompt  for  $500. 

PB Prompt  for  $250. 

PC Prompt  for  $100. 

PD Prompt  for  $50. 

7  83 


RETAIL  CREDITS  AND  COLLECTIONS 

PE Prompt  for  $25. 

PF Prompt  for  $10. 

G Considered  good,  but  not  prompt. 

S Slow. 

R Require  cash. 

K Account  for  collection. 

Z Chattel  mortgage  on  personal  property. 

Vol Voluntary  bankrupt. 

Invol Involuntary  bankrupt. 

FED Forcible  entry  and  detainer. 

ATT Attachment. 

GARN Garnishment. 

Ex Execution. 

EXT Extension  on  chattel? 

O Representation  of  goods  under  chattel. 

HE Homestead  entry. 

ASGN Assignment. 

Special  information  at  office. 

Combinations  like  "  GE"  and  "  SE"  appear- 
ing on  the  card  shown  indicate  "Good  for 
$25"  and  "  Slow  for  $25." 

Shall  There  Be  a  Rating-book?  In  the  early  days  of 
local  credit  bureaus  it  was  the  custom  to  issue  the  find- 
ings of  the  bureau's  investigation  to  members  in  the  form 
of  a  rating-book.  It  was  found,  however,  that  the  issuing 
of  such  data  in  book  form  usually  took  so  long  in  prepara- 
tion that  it  could  not  keep  up  with  the  demands  for  instant 
and  up-to-the-minute  information.  The  data  were  six 
months  old  by  the  time  the  book  could  be  compiled  and 
printed. 

To  meet  the  need  for  fresh  information,  the  telephone 
was  brought  into  use.  With  the  proper  increases  in  the  office 
staff  to  handle  inquiries  the  rating-book  was  discontinued. 

Value  of  Frequent  Meetings  of  Local  Retail  Credit  Men. 

For  the  small-town  merchant,  where  conditions  may  not  be 

84 


CO-OPERATIVE    CREDIT    INVESTIGATIONS 

exactly  suitable  for  the  establishment  of  a  local  credit  associ- 
ation affiliated  with  a  national  organization,  probably  the 
nearest  approach  to  effective  credit  co-operation  will  be 
found  in  the  local  business  men's  club  or  the  chamber  of 
commerce. 

In  most  organizations  of  this  kind  there  is  some  provision 
made  for  the  interchange  of  credit  information  in  an  in- 
formal way  which  is  helpful  for  all.  Opportunity  is  given 
at  the  meetings  held  at  suitable  intervals  to  compare  notes 
and  to  establish  the  beginnings  of  a  closer  movement  toward 
real  co-operation,  and  away  from  the  once  common  feeling 
of  suspicion  and  "go-it-alone"  policy  which  refuses  to  recog- 
nize like  interests  for  the  common  good. 

The  Manager  and  His  Work.  Responsibility  for  oper- 
ating the  bureau  falls  usually  upon  the  shoulders  of  one  man, 
either  the  paid  secretary  of  the  local  business  men's  club 
or  chamber  of  commerce  or,  in  larger  centers,  upon  some 
one  picked  for  especial  fitness  for  the  work  based  on  past 
experience. 

The  chief  part  of  his  work,  after  the  preliminary  organiza- 
tion has  been  completed  and  the  data  turned  in  by  members 
has  been  put  into  record  form,  is  to  keep  constantly  in 
touch  with  the  members  of  the  bureau,  making  personal 
calls  upon  others  in  the  business  community  who  may  logi- 
cally become  members,  and  in  making  personal  investiga- 
tions of  the  residents  of  the  community  when  there  are 
specially  difficult  cases  to  handle. 

The  Clerical  Staff.  The  number  of  assistants  needed 
for  the  operation  of  such  a  bureau  will  naturally  depend 
upon  the  size  of  the  community,  the  number  of  members, 
and  the  number  of  customers  recorded. 

Usually  there  is  a  telephone  clerk  assigned  to  each  sec- 
tion of  the  card  file — from  ten  to  twenty  thousand  names  in 

each  section,    Between  calls  for  information  the  clerks  are 

85 


RETAIL    CREDITS    AND    COLLECTIONS 

occupied  in  transferring  to  cards  the  information  on  new 
customers,  entering  fresh  data  on  cards  already  on  file,  and 
otherwise  keeping  the  records  of  the  bureau  in  shape  for 
instant  reference. 

Files  and  Records.  In  addition  to  cards  shown  as  ex- 
hibits A  and  B,  which  are  taken  practically  intact  from  those 
in  use  in  the  exchange  bureau  at  Denver,  Colorado,  there 
are  additional  forms  in  use  for  specific  purposes.  For  ex- 
ample, each  day  a  complete  record  of  suits  of  record  in  jus- 
tice courts  is  obtained  from  the  county  clerk's  office.  Any 
other  information  of  value  to  credit-granters  is  taken  from 
the  papers  and  other  sources.  Changes  of  address  are 
turned  in  regularly  on  slips  furnished  by  the  bureau  shown 
in  Exhibit  C. 

EXHIBIT  C 


CHANGE  OF  ADDRESS 

Last  name  First.    Write  name  in  full. 
Brown,  John  A. 

House  address  was  —  1560  Pennsylvania  Avenue 
Change  to  1520  Washington  Avenue. 
Business  address  —  1056  16th  Street 
No.  3.  Date  of  change  11/26/15 

Be  sure  to  return  this  to  R.  C.  M.  and  A. 
80 


CO-OPERATIVE    CREDIT    INVESTIGATIONS 

Notice  of  Detrimental  Reports.  Clerks  in  the  routine 
of  their  daily  work  hold  out  any  card  on  which  detrimental 
information  is  placed,  such  as  suits  for  debts,  mortgages, 
assignments,  collection  accounts,  "require  cashes"  turned 
in  by  any  member,  or  anything  that  seems  to  show  that  a 
customer  is  on  a  financial  decline.  These  cards  are  then 
passed  to  a  clerk,  who  notifies  each  member  whose  number 
appears  on  the  master  card,  by  sending  a  slip  (Exhibit  D) 
giving  the  nature  of  the  information. 

EXHIBIT  D 


Firm  Name  No.  23 


Name  —  Brown,  John  A. 


Business  Address  —  1056  —  16th  Street 


Residence  Address  —  1520  Washington  Avenue 


Remarks  —  K. 


Indebtedness  Report  or  Clearance.  Frequently  these 
are  accounts  which  appear  to  be  in  good  condition  on  a 
member's  books,  but  which  have  reached  about  the  limit  he 
is  believed  to  be  entitled  to.  The  member  wishing  to  know 
what  he  owes  to  others,  calls  up  the  bureau  to  find  out. 
The  clerk  calls  up  each  member  who  has  an  account  and 
gets  the  information  shown  in  Exhibit  E.  This  information 
is  then  written  upon  the  form  and  each  member  who  reports 

is  sent  a  copy. 

87 


RETAIL    CREDITS    AND    COLLECTIONS 

EXHIBIT  E 


Name  —  John  A.  Brown 

Address  —  1520  Washington  Avenue 

Business  Address  —  1056  — 

16th  Street 

Business 

Owing  From 

To 

Rate 

Clothing 

-  $25  —  9/14 

-  1/16 

R 

Department 

-  $15  —  1/15 

-  1/16 

S 

Hardware 

-  $75  —  6/15 

-  1/16 

8 

Clothing 

-  $40  —  8/15 

-  1/16 

S 

i 
Department 

—$100  —  5/15 

-  1/16 

S 

China 

-  $20  —  9/15 

$275 

-  1/16 

S 

Remarks:    Has  been  sued  for  debt  and  has  chattel  mortgage 
on  piano  for  loan  of  money  amounting  to  $100. 

A  duplicate  of  this  is  sent  to  each  person  reporting  on  the  man. 

If  the  result  shows  more  indebtedness  than  the  circum- 
stances of  the  individual  warrant,  the  manager  of  the  bureau 
is  asked  to  see  each  interested  member  and,  if  agreeable  to  all, 
either  the  association  or  the  largest  creditor  writes  him  a 
letter  requesting  an  interview,  when  he  is  shown  a  copy  of 

the  report  and  asked  to  make  a  statement  of  his  financial 

88 


CO-OPERATIVE    CREDIT    INVESTIGATIONS 

affairs,  or  give  sufficient  information  to  justify  his  owing  that 
amount  of  money  on  open  account. 

It  also  opens  the  way  for  the  payment  of  the  account, 
either  through  the  association,  which  will  distribute  the 
payments  pro  rata  each  month,  or  his  agreement  to  pay 
each  member  proportionately  and  the  closing  of  the  account 
until  they  are  paid  or  materially  reduced. 

Uniform  Application  Blanks.  Another  feature  which 
has  been  helpful  is  the  adoption  of  a  uniform  application 
blank.  Members  make  use  of  a  form  similar  to  Exhibit  F 
printed  on  their  own  stationery.  This  blank  leads  all  the 
local  credit  men  to  ask  nearly  the  same  questions  and  in- 
spires the  applicant  with  the  fact  that  there  is  a  concerted 
movement  among  local  stores  to  get  the  information 
needed. 

EXHIBIT  F 


Name 


Residence  address 


Former  residence  address 


Business  address 


How  long  at  above  address 


Own  property  at 


References: 


89 


RETAIL    CREDITS    AND    COLLECTIONS 

Private  Telephone  Service.  Much  of  the  effectiveness 
of  the  service  rendered  by  the  bureau  is  due  to  the  use  made 
of  the  telephones.  In  the  larger  bureaus,  like  those  of  Den- 
ver or  Cleveland,  there  are  as  many  as  four  incoming  and 
three  outgoing  lines.  In  addition  to  these  trunks  the  larger 
users  of  the  service  have  installed  private  direct  lines  con- 
nected with  their  switchboards,  thus  insuring  quick  service 
without  interfering  with  the  regular  service. 

Providing  Desired  Information.  In  addition  to  the  regu- 
lar reporting  service  provided  on  telephone  call,  the  bureau 
offers  facilities  also  for  special  reports  from  the  county 
real-estate  records,  making  special  investigations  as  to 
whether  persons  claiming  discounts  as  members  of  certain 
trades,  like  dressmakers,  are  entitled  to  them;  looking  up 
applicants  for  employment;  tracing  missing  debtors;  and 
the  like. 

Collection  Service.  In  cases  where  the  bureau  has  been 
called  upon  to  render  reports  of  indebtedness  shown  in 
Exhibit  E,  the  merchants  to  whom  bills  are  owing  often 
find  it  convenient  to  intrust  the  collection  of  their  accounts 
to  the  bureau.  In  such  cases  collection  letters  written  on 
the  bureau's  letter-heads  are  mailed  to  the  delinquent,  thus 
relieving  the  individual  merchant  of  the  bother  of  following 
the  account,  and  realizing  at  the  same  time  an  undoubted 
psychological  advantage  on  the  debtor's  mind,  because  he 
realizes  that  he  is  being  watched,  not  by  one  of  his  creditors 
alone,  but  by  all  of  them. 

One  series  of  letters  of  this  kind  is  that  reproduced  here, 
used  by  the  New  Orleans  Retailers  Credit  Bureau. 


90 


CO-OPERATIVE    CREDIT    INVESTIGATIONS 


NEW    ORLEANS    RETAILERS    CREDIT    BUREAU 

400  .Association  of  Commerce  Bldg. 

Member    Retail    Credit    Men's   Nat'l   Ass'n 

New  Orleans,  La. 


In  preparing  the  files  of  this 
Bureau,  organized  for  the  mutual  inter- 
change of  credit  information,  we  find 
that 

report  an  account  against  you  which  is 
past  due. 

We  would  suggest  that  you  make 
a  settlement  with  your  creditor  at  once 
so  that  your  record  may  be  clear  in  our 
files. 

Members  of  the  Bureau  will,  under 
our 'rules,  report  to  us  within  five  days 
as  to  whether  or  not  settlement  has  been 
made . 

Very  truly  yours, 

NEW  ORLEANS  RETAILERS  CREDIT  BUREAU,  INC 


91 


RETAIL    CREDITS    AND    COLLECTIONS 

NEW    ORLEANS    RETAILERS    CREDIT    BUREAU 

400   Association   of  Commerce  Bldg. 

Member    Retail    Credit    Men's    Nat'l    Ass'n 

New  Orleans,  La. 


We  wrote  you  under  date  of 
stating  that 

had  reported  an  account  against  you 
which  is  past  due.' 

Our  letter  showed  clearly 
that  it  was  sent  in  order  to  give  you 
an  opportunity  to  make  settlement  with 
your  creditor  and  thus  avoid  an  unfavor- 
able credit  report  with  us. 

Operated,  as  our  Bureau  is,  "by 
the  leading  retail  merchants  of  New  Orleans, 
our  aim  is  to  conduct  negotiations  with 
you  in  confidence  and  with  the  utmost 
fairness.   It  is  our  "business  to  give 
accurate  and  truthful  information  as  to 
the  paying  habits  of  customers  when  inquiry 
is  received  from  members  of  the  Bureau, 
and  we  feel  sure  you  will  appreciate  the 
value  of  a  good  credit  standing  with  these 
merchants . 

We  shall  expect  you  to  make 
settlement  with  your  creditor  at  once. 
Under  the  rules  of  our  Bureau,  unless  this 
is  done  within  five  days,  the  matter  will 
be  turned  over  to  our  attorneys  for  proper 
action. 

Very  truly  yours, 
NEW  ORLEANS  RETAILERS  CREDIT  BUREAU,  INC. 


92 


CO-OPERATIVE    CREDIT    INVESTIGATIONS 

NEW    ORLEANS    RETAILERS    CREDIT    BUREAU 

400    Association  of   Commerce   Bldg. 

Member   Retail    Credit    Men's    Nat'l    Ass'n 

New  Orleans,  La. 


The  New  Orleans  Retailers  Credit  Bureau 
is  owned  and  operated  "by  the  large  retail 
stores  of  New  Orleans  for  their  protection. 
The  stores  connected  with  the  Bureau  have 
given  us  a  list  of  all  their  customers  and 
also  make  reports  to  us  daily.   IP  YOU  DON'T 
PAY  YOUR  BILLS  THE  CREDIT  BUREAU  KNOWS  IT 
AND  OUR  RECORDS  ARE  AVAILABLE  TO  ALL  OF  THE 
LARGE  STORES  OP  THIS  CITY.   The  Bureau  also 
furnishes  information  direct  to  other  Retail 
Credit  Bureaus  in  all  of  the  large  towns  and 
cities  of  the  United  States. 

You  can't  afford  to  have  an  unfavorable 
record  in  our  files,  and  while  we  have  writ- 
ten you  several  times  regarding  your  account 
with  and  have  heard  nothing 

from  you,  yet  we  are  of  the  opinion  that  you 
are  honest  and  want  to  pay  this  account. 

Is  there  some  mistake  in  your  account? 
Are  you  unable  to  pay  the  bill  now?  Were 
you  unfairly  treated  by  the  store? 

We  are  willing  to  do  anything  that  is 
right  about  arranging  a  settlement,  but, 
unless  we  receive  a  reply  within  five  days, 
shall  take  it  for  granted  that  you  do  not 
intend  to  pay  this  bill  and  you  may  look 
for  an  opportunity  to  settle  with  our 
attorney. 

Very  truly  yours, 

NEW  ORLEANS  RETAILERS  CREDIT  BUREAU,  INC. 
Per  Mgr. 

93 


RETAIL    CREDITS    AND    COLLECTIONS 

Sending  Out  Personal  Collectors.  In  some  bureaus  it 
has  been  found  effective  to  use  personal  investigators  as 
collectors.  One  or  more  men  attached  to  the  bureau  ex- 
perienced in  the  art  of  personal  collecting  add  a  very  effec- 
tive bit  to  the  service  rendered  by  the  bureau. 

Cost  of  Operation.  In  a  city  of  200,000  population,  it 
will  take  at  least  nine  or  ten  employees  to  operate  the  office 
successfully. 

Adding  the  charge  for  help,  charges  for  rent,  stationery, 
telephone,  and  the  like,  experience  shows  that  from  $8,000 
to  $9,000  a  year  will  about  cover  the  expense,  making  an 
average  of  about  $42.50  per  month  for  a  membership  of  200. 
Usually  a  charge  is  fixed  according  to  the  use  made  of  the 
reporting  and  collection  service,  with  a  fixed  charge  for  a 
minimum. 

A  System  Based  on  Abnormal  Transactions.  Since  the 
item  of  expense  of  time  or  money  is  one  that  must  be  con- 
stantly watched,  there  is  a  special  and  growing  interest 
now  in  a  system  of  credit-reporting  that  concerns  itself  only 
with  the  abnormal  or  unfavorable  in  its  records. 

Under  such  a  system  a  credit  customer  who  always  buys 
in  normal  amounts,  and  who  pays  his  bills  with  regularity, 
will  not  appear  prominently  in  the  files  of  the  interchange 
office,  where  only  abnormal  transactions  are  reported.  This 
is  because  no  one  has  had  occasion  to  inquire  about  him. 

The  unsatisfactory  customer,  on  the  other  hand — that  is, 
the  one  who  is  habitually  slow  with  his  creditors  and  who 
for  that  reason  is  always  compelled  to  seek  new  credit — 
is  likely  to  have  a  great  deal  of  information  recorded  about 
himself,  because,  under  the  rules  of  such  a  system,  each 
slow  payment  and  each  request  for  new  credit  will  have 
brought  an  inquiry,  accompanied  by  a  statement  of  the 
facts  that  caused  the  inquiry  to  be  made. 

The  advantages  of  such  a  system  over  one  where  the  same 

94 


CO-OPERATIVE    CREDIT    INVESTIGATIONS 

amount  of  record  keeping  and  reporting  is  necessary  for  all 
accounts,  normal  and  abnormal,  will  be  self-evident.  In 
most  cases,  however,  opportunity  is  given  the  inquirer  to 
indicate  by  a  check  mark  on  the  inquiry  ticket  whether,  in 
the  case  of  all  old  customers,  the  last  bill  was  discounted, 
paid  at  maturity,  slow,  or  collected  by  draft  or  attorney. 
Only  those  transactions  involving  new  or  considerably  in- 
creased credit  are  reported 

Pay -up  Week.  The  Chinese  have  a  custom  of  celebrat- 
ing New- Year's  day  by  looking  up  their  creditors  and  paying 
their  debts.  This  idea,  borrowed  and  applied  in  various 
communities  throughout  the  country,  has  worked  so  success- 
fully that  an  effort  has  been  made  to  provide  a  "national 
pay-up  week"  at  the  end  of  February  in  each  year. 

The  secretary  of  the  Chamber  of  Commerce  in  a  small 
Wisconsin  town  explains  the  working  of  pay-up  week  as  ap- 
plied to  his  locality: 

The  settlement-week  movement  is  an  effort  to  get  each  community 
to  set  a  time  each  year  in  which  men  shall  settle  with  one  another 
and  get  their  business  bearings,  so  as  to  carry  on  intelligently  the 
work  of  the  new  year.  In  these  days,  business  is  so  complex  that 
one  man's  success  depends  to  a  large  extent  upon  the  other  fellow. 
If  I  pay  my  bill,  the  other  man  will  pay  his,  and  so  an  endless  wave 
is  set  in  motion  with  an  effect  that  finally  comes  back  to  me.  Men 
go  on  year  after  year  doing  business  in  a  haphazard  way,  not  know- 
ing where  they  stand.  One  man,  a  tailor,  told  me  he  had  been 
doing  business  back  and  forth  with  a  dentist  for  ten  years,  and 
that  he  had  no  idea  who  was  the  debtor,  or  how  much.  Then, 
again,  the  last  year  has  been  especially  unfortunate  in  the  number 
of  book  accounts.  The  merchants  of  this  small  town  sent  out 
about  8,000  statements,  and  as  a  result  something  over  2,000  ac- 
counts were  settled  and  over  $40,000  was  paid  during  the  week. 

The  movement  to  organize  pay-up  weeks  is  usually 
sponsored  by  the  local  associations  which  aim,  through  local 

newspaper  and  poster  advertising,  to  quicken  the  local  con- 

95 


RETAIL    CREDITS    AND    COLLECTIONS 

sciousness  of  credit  obligation,  to  get  every  one  who  may 
owe  another  a  sum  of  money  to  make  an  extra  effort  with 
others  in  the  community  to  pay  up  and  start  over. 

Certain  trade  papers  have  been  active  in  promoting  the 
organization  of  such  campaigns,  and  in  some  instances  they 
have  undertaken  to  supply  the  forms  needed  and  to  give 
detailed  instructions  as  to  how  to  proceed.  The  results  from 
such  campaigns  reported  from  various  parts  of  the  country 
have  been  surprisingly  favorable. 

How  Pay-up  Week  Is  Organized.  The  Dallas  Retail 
Credit  Men's  Association  initiated  the  movement  for  the 
pay-up  week  in  Dallas,  which  in  many  ways  was  notable 
among  such  unique  campaigns.  The  first  thing  they  did 
was  to  investigate  the  experience  of  other  cities  in  plan- 
ning such  a  campaign,  to  find  out  where  the  weak  spots 
in  the  scheme  occurred. 

When  the  committee  from  the  association  went  to  the 
Dallas  merchants  with  the  suggestion  for  holding  such  a 
pay-up  week,  they  were  met  with  a  ready,  enthusiastic 
response.  Every  merchant  in  the  city  realized  the  good  to 
be  derived  from  such  a  campaign.  All  the  details  were 
worked  up  by  the  Retail  Credit  Men's  Association  without 
the  aid  of  any  one  from  the  outside.  All  advertising  copy 
was  written  by  men  who  were  thoroughly  familiar  with  the 
credit  angle.  The  campaign  was  different  from  other  co- 
operative advertising  in  that  it  included  every  newspaper  in 
Dallas,  weekly  as  well  as  daily,  and  no  single  piece  of  copy 
was  in  any  case  duplicated.  For  two  weeks  ahead  of  time 
slides  showing  catchy  notices  of  the  approaching  event  were 
thrown  upon  the  screens  in  moving-picture  houses  in  Dallas; 
street  banners  were  used  in  the  mam  intersections  of  the 
city  streets  in  which  " pay-up  week7'  was  strongly  featured. 
Hundreds  of  large  two-colored  placards  were  put  in  the 

show  windows  and  elevators  in  the  city,  bearing  "  credit 

96 


CO-OPERATIVE    CREDIT    INVESTIGATIONS 

don'ts,"  and  blotters  were  distributed  in  the  down-town  busi- 
ness section,  bearing  the  same'  kind  of  publicity  appeal. 

Direct-by-mail  advertising  methods  were  followed  in  the 
distribution  of  many  thousand  pages  of  credit  matter  through 
the  telephone  companies  and  various  merchants  who  in- 
closed them  with  letters,  and  so  a  wide  circulation  was  se- 
cured with  the  least  possible  waste.  On  the  first  day  of 
"pay-up  week"  advertising  copy  displays  three  columns 
wide  were  used  in  all  four  daily  papers,  in  addition  to  which 
small  cuts  of  greater  variety  were  used  on  different  pages. 
A  few  of  the  pages  of  copy  used  for  the  campaign  are  repro- 
duced here. 

Meet  Your  Obligation  Sunday.  Another  interesting  ex- 
ample of  co-operative  effort  on  the  part  of  retailers  to  keep 
people  reminded  of  their  obligations  as  credit  customers  is 
"Meet  your  obligation  Sunday,"  a  typical  campaign  for 
which  was  recently  initiated  in  Dallas,  Texas,  also  by  the 
local  Credit  Men's  Association,  in  which  the  churches  lent 
their  fullest  measure  of  aid. 

The  movement  was  based  on  the  idea  that  the  church 
has  always  stood  for  honesty,  for  the  commandment  "Thou 
shalt  not  steal,"  and  although  the  appeal  had  never  come 
quite  so  directly  before,  the  church  has  really  always  been 
a  moving  factor  in  urging  people  to  be  honest  and  to  pay 
their  debts.  Since  collection  laws  in  Texas  are  notably  lax, 
it  was  evident  that  all  the  moral  influence  possible  should 
be  brought  to  bear  on  people  in  the  community  to  keep  them 
alive  to  their  obligations. 

When  the  project  was  being  planned,  the  representative 
from  the  local  Credit  Men's  Association  addressed  the  Dallas 
Pastors'  Association,  showing  them  an  opportunity  for  the 
churches  to  do  a  practical  service  for  the  community  and 
for  themselves.  The  association  pledged  itself  to  advertise 

the  project  as  widely  as  possible,  to  insure  its  success.    The 

97 


RETAIL    CREDITS    AND    COLLECTIONS 


W  I 
1».  1 

111  " 

,-sft  . 
Mil  s 
<iJ;  E 

iini 

j*5a  «^> 

«*:•»  r=3 

S  I 

^1 

2 


•»  X  X' 

fl 


'*  I  '  1  ! 
iliti 


iiliauHii- 

|  -:i|.ii:f 
Willis! 

O  t*^1j3S 


-'I  i! 


a  ja  KB. 


duiST-   pa«=      158  "»8;!<  111  IT>I 

slljlliildklffl 


r  1  «8t  M«4j  5^  H*Jl 

liril-lllllilM 


98 


CO-OPERATIVE    CREDIT    INVESTIGATIONS 


41 

Jdf&ffl 

mm 


ii 

ii 
I* 


I! 
Ii 


111  Mill  * 


>« 


0  glilKli 


in 


99 


RETAIL  CREDITS  AND  COLLECTIONS 

campaign  opened  with  an  explicit  letter  to  every  pastor  in 
the  city,  explaining  the  entire  problem,  and  giving  an  out- 
line of  the  points  to  serve  as  a  basis  for  their  sermons. 

On  the  Monday  preceding,  hundreds  of  attractive  posters 
were  distributed  all  over  the  city  in  store  windows,  banks, 
and  elevators,  or  wherever  they  would  be  seen.  The  poster 
reproduced  here  was  the  type  used. 


On  Wednesday  the  display  advertising  planned  as  a  part 
of  the  campaign  began  to  appear  in  the  papers,  and  continued 
up  to  the  Sunday-morning  edition.  The  sermons  delivered 
were,  without  exception,  practical  and  to  the  point. 

General  Advertising  to  Help  Retail  Credits.  A  campaign 
for  securing  a  better  understanding  by  the  customers  of 
retail  grocers  of  their  obligation  to  pay  their  bills  had  been 

undertaken  in  several  instances  by  jobbers  and  manufact- 

100 


CO-OPERATIVE    CREDIT    ItfVESTICrA'f 


urers  who  stood  all  the  expense  of  the  campaign.  The  sole 
purpose  of  this  advertising  was.  to  ask  a  square  deal  for  the 
corner  grocer  from  those  he  accommodates  by  extending 
credit. 

A  typical  piece  of  copy  in  such  a  campaign  is  reproduced 
here. 


HINTS  TO  THE  WISE 


When  you  pay  your  bills,  give  your 
grocer  first  money. 

He  supplies  you  with  the  most  necessary 
things  in  life — food. 

The  most  important  thing  in  the  world 
is  to  get  something  good  to  eat. 

If  you  must  put  off  paying  any  one,  there- 
fore, let  it  be  any  one  BUT  the  grocer. 

He  is  not  wealthy.  He  seldom  has  a 
surplus  in  the  bank.  His  money  is  all  in- 
vested in  merchandise  and  accounts. 

He  buys  of  wholesale  houses  who  sell  on 
stated  terms  and  have  experts  who  are  paid 
to  get  the  money  when  due.  He  cannot 
pay  them  with  excuses. 

He  cannot  afford  collection  expenses. 
He  should  not  be  expected  to.  If  he  is 
courteous  enough  to  give  you  credit, 
show  him  equal  courtesy  by  saving  him 
extra  expense. 

He  has  no  security.  What  you  buy  of 
him  is  soon  consumed  and  he  cannot  get  it 
back.  He  trusts  you  on  your  honor  alone. 
Who  else  does  as  much  for  you? 

He  asks  no  favors — needs  no  charity — 
but  is  entitled  to  a  square  deal. 

Be  square — be  fair — be  just. 


101 


TiITAIJ.    C£EI)ITS    AND    COLLECTIONS 

Advertising  Advantages  of  Credit.  Still  another  out- 
growth of  the  co-operation  movement  toward  customer 
education  in  credit  is  found  in  the  advertising  campaigns 
undertaken  by  local  associations  in  Nashville  and  other 
cities  in  the  South  and  Northwest,  using  paid  advertising 
space  in  local  newspapers. 

The  theory  .back  of  the  advertising  plan  is  that,  if  credit 
is  a  good  thing,  why  not  advertise  it?  The  copy  used  com- 
prises a  series  of  educational  talks,  published  frequently 
during  the  year  and  intended  to  show  the  relation  between 
prompt  payment  of  bills  and  the  continued  expanding  prop- 
erty of  merchants  and  of  the  individuals  themselves. 

Local  Credit  Associations  Operating  Without  a  Central 
Bureau.  There  have  been  a  number  of  instances  where 
local  merchants  have  been  able  to  secure  all  the  benefits  of 
a  central  bureau  for  interchange  of  credit  information,  but 
without  actually  going  to  the  expense  of  maintaining  an 
office  with  manager  and  assistants  in  charge. 

The  plan  in  such  instances  is  to  provide  stationery  printed 
to  bear  the  name  chosen  for  the  association  like  "Retail 
Merchants'  Association,"  or  the  like,  and  give  each  merchant 
a  supply.  He  keeps  track  of  all  his  own  accounts.  When  it 
becomes  necessary  to  write  to  some  of  his  delinquents  he 
writes  on  association  stationery  and  signs  it  with  the  name 
of  the  secretary.  Thus  behind  his  efforts  at  collecting  stands 
the  moral  support  of  the  entire  association,  procured  with 
but  slight  expense.  Under  the  plan  each  member  of  the 
association  is  supposed  to  act  as  a  corresponding  secretary. 

The  association  has  a  post-box  to  which  all  association 
correspondence  is  directed.  It  is  taken  out  by  the  secretary 
and  distributed  to  members.  The  fee  for  membership  is 
nominal — one  dollar — and  a  charge  is  made  for  the  station- 
ery used. 

The  method  of  organizing  such  an  association  is  made 

102 


CO-OPERATIVE    CREDIT    INVESTIGATIONS 

clear  in  the  following  by-laws  of  an  organization  of  this  kind 
in  the  Central  West. 

We,  the  undersigned,  believing  that  many  of  the  evils  incident 
to  a  credit  business  may  be  eliminated  by  co-operation,  do  hereby 

organize  an  association  to  be  known  as  the  

Protective  Association.  Its  object  shall  be  to  assist  each  other  in 
the  collection  of  bad  accounts  and  to  protect  its  members  from  those 
unworthy  of  credit. 

Its  officers,  elected  annually,  shall  be  a  president,  whose  duties 
shall  be  to  call  meetings  when  it  deems  it  advisable,  and  to  pre- 
side over  the  same;  a  recording  secretary  and  treasurer,  whose 
duties  shall  be  to  keep  a  record  of  all  meetings,  collect  dues  and 
assessments,  distribute  mail  to  individual  members  that  has  been 
addressed  to  the  association,  to  purchase  stationery  and  sell  it  to 
the  members  at  actual  cost,  and  to  perform  other  duties  as  approved 
by  the  advisory  board. 

An  advisory  board  consisting  of  the  president  and  three  members 
appointed  by  him,  whose  duties  shall  be  to  define  the  policy  of  the 
proceedings,  are  within  the  limits  of  the  law.  To  audit  the  accounts 
of  the  secretary  and  treasurer  and  to  instruct  him  in  any  special 
duties  that  may  be  required. 

Each  member  of  this  association  shall  be  a  corresponding  sec- 
retary and  be  authorized  to  use  the  association  stationery  and 
form  letters  constructed  for  that  purpose.  Membership  fee  will 
be  $1  payable  in  advance. 

Retail  Credit  Men's  National  Association.  Helpful  as 
the  local  associations  of  credit  men  have  proven  to  be,  the 
organization  of  bureaus  and  co-operative  efforts  to  better 
the  business  conditions  of  the  community,  their  efforts  would 
never  go  far  toward  permanent  betterment  of  conditions  and 
retail  credit  practice,  as  far  as  the  country  is  concrened, 
without  the  centralizing  and  unifying  influence  of  a  national 
association. 

The  Retail  Credit  Men's  National  Association,  with  pres- 
ent headquarters  at  613  Locust  Street,  St.  Louis,  Missouri, 
has  been  developed  in  answer  to  the  need  for  a  permanent 

organization  for  improvement  of  retail  credit  conditions. 

103 


RETAIL    CREDITS    AND    COLLECTIONS 


<U 


PQ 

j-< 
.o 


ifixiftrosiKi!!] 


^  1 

ilhFiifes   SlJit  !Jml.*J  ^oatg  Q 


104 


CO-OPERATIVE    CREDIT    INVESTIGATIONS 


0 

id 

1 

% 

.ts 

3 

•s 

M 

IfjJ  When  YOU  overlook  an  account 
andv  you  receive  "duns"  —  don't 
blame-  the  credit  man. 

,n  YOU'VE  made  a  promise  to 
and  broken  it  and  the  -creditor 
ts  on  HIS  money  —  don't  blame 
:redit  man. 

n  YOU  buy  goods  with  the 
^standing  that  you  will  pay 
hem  at  a  certain  time  and  you 
t  do  it  and  you  are  reminded  of 
•  negligence  —  don't  blame  the 
ft  man. 

n  YOU  habitually  neglect  your 
unt'and  your  word  can't  be  de- 
led upon  any  longer  and  your 
unt  has  to  be  closed  —  don't 
le  the  credit  man. 

(J  And  when  YOU  go  elsewhere  to 
open  an  account  and  the  accommo- 
dation is  declined  —  for  your  credit 
record  follows  you  wherever  you 
may  go  —  don't  blame,  the  credit 
man. 

"•2 

3 

1 

Dallas  Retail  Credit  Men's  Association 

***** 

y 

*•§ 

^ 

O    |_, 

>>  y 

t^  rt  Ou  cJ  3 

105 


RETAIL    CREDITS    AND    COLLECTIONS 

Quoting  from  a  circular  of  information  issued  by  this 
association,  its  objects  are: 

1.  Information.  (On  credit  subjects,  matters  and  methods 

of  interest  and  importance.) 

2.  Education.  (Experience    and    suggestions    conveyed 

through  the  Credit  World  and  in  person  at 
conventions.) 

3.  Co-operation.  The  interchanging  of  ideas,  credit  data, 

successful  and  workable  schemes.) 

4.  Improved  Legislation.  (The  improvement  of  laws  dealing  with 

the  individual  seeker  of  credit  and  the  en- 
actment of  new  laws  of  benefit  to  the  re- 
tail trade.) 

5.  Uniform  Methods.       (Uniformity  in  order  to  secure  the  highest 

degree  of  efficiency.) 

Advantages  of  Co-operation.  Summing  up  the  benefits 
that  might  be  derived  from  membership  in  a  retail  credit 
men's  association,  which  in  turn  is  affiliated  with  the 
national  association,  they  are: 

1.  Credit  men  are  brought  together,  and  the  exchange  of  ideas 

broadens  them  and  keeps  them  in  touch  with  subjects 
vitally  important  to  their  work. 

2.  Great  amounts  of  money  are  saved  to  the  merchants  annually 

in  place  of  going  to  the  support  of  a  very  undesirable  class 
of  citizens. 

3.  The  general  public  is  educated  to  the  fact  that  credit  accounts 

are  obligations  which  must  be  paid  promptly  if  they  desire 
a  first-class  standing  with  the  merchants. 

4.  By  co-operation,  many  evils  affecting  collections  are  eliminated, 

where  individual  effort  would  be  in  vain. 

5.  Many  good  laws  relative  to  assignments,  mortgages,  exemptions, 

and  collection  of  accounts  in  general  have  been  placed  in 
the  statute-book  as  a  result  of  the  co-operation  of  credit  men. 

6.  The  credit  exchange  bureau  is  the  best  collector  of  slow  ac- 

counts in  existence.     The  Retail  Credit  Men's  National 
Association  represents  the  greatest  movement  so  far  made 
toward  betterment  of  retail  credit  conditions. 
IOC, 


Part   III 
CREDIT    OFFICE    PROCEDURE 


VII 

HANDLING   APPLICATIONS   FOR  NEW   ACCOUNTS 

Information  Essential  for  Judgment  of  Credit  Risks. 
While  the  volume  of  any  established  store's  business  must 
come  from  old  customers — those  who  have  been  accustomed 
to  make  their  purchases  more  or  less  regularly  at  the  store 
from  time  to  time — much  thought  and  attention  must  be 
given  by  every  progressive  store  proprietor  to  securing  the 
accounts  of  new  people  who  are  constantly  being  added  to 
every  growing  community. 

There  are  two  things  to  consider  in  connection  with  new  ac- 
counts: First,  the  securing  of  them,  and,  second,  the  handling 
of  these  customers  at  the  time  the  account  is  opened. 

The  information  essential  for  the  judgment  of  credit  risks 
may  be  grouped  under  three  heads:  1.  The  applicant's  char- 
acter. 2.  The  applicant's  capacity.  3.  The  applicant's  co- 
operation. 

These  three  "C's"  of  retail  credit-granting  are  not  quite 
identical  with  those  so  often  quoted  in  wholesale  credit 
practice.  The  trouble  in  the  past  has  been  that  retail  credit 
men  have  tried  to  follow  wholesale  credit  methods  a  bit 
blindly  and  without  realizing  that  there  is  a  wide  difference 
in  their  contact  with  the  customer. 

Take  the  applicant's  character,  for  example.  It  will  be 
revealed  first  in  his  general  history;  second,  in  his  standing 
in  the  community;  and,  third,  in  his  ability  to  get  ahead  as 
shown  in  the  amount  of  salary  he  receives,  the  amount  of 

property  he  owns,  the  vigor  with  which  he  conducts  his 

109 


RETAIL  CREDITS  AND  COLLECTIONS 

business,  or  the  consistency  with  which  he  holds  his  position 
if  he  is  on  a  salary. 

Character  in  the  sense  that  it  affects  the  retail  credit 
man's  judgment  of  an  applicant,  then,  is  the  indication  of  his 
intention  or  his  willingness  to  pay. 

Capacity  in  the  applicant  is  judged  by  his  ability  to  earn 
enough  to  pay  his  way — to  increase  in  earning  power  con- 
sistently to  make  his  account  increasingly  more  worth  while 
to  carry. 

The  third  "C" — which  we  have  called  "co-operation" — 
is  the  applicant's  manifested  willingness  to  co-operate  with 
the  store  by  buying  regularly,  paying  promptly,  and  con- 
centrating his  purchases  at  the  place  where  he  has  been 
extended  the  privileges  of  a  charge  account  because  of  the 
fact  that  he  values  the  consideration  shown  him. 

Importance  of  a  Good  Impression  on  New  Customers. 
Remembering  that  it  often  costs  dearly  to  obtain  the  first 
order  from  a  new  customer,  it  is  necessary  to  consider  care- 
fully how  applications  shall  be  handled  so  that  the  ac- 
counts may  be  made  to  grow  into  profitable  ones.  There 
are  two  decisions  involved  in  the  consideration  of  all  ap- 
plications for  credit  from  new  customers.  1.  Shall  credit  be 
granted  at  all?  2.  What  limitation  shall  be  put  upon  it? 

Practice  differs  widely  in  all  particulars  with  (a)  different 
lines  of  industry,  and  (6)  different  concerns  in  the  same  in- 
dustry. 

What  Information  to  Get.  First,  from  the  customer's 
own  lips,  at  the  tune  he  has  his  first  interview  at  the  credit 
desk  and  makes  his  request  to  open  an  account,  the  credit 
man  has  his  best  opportunity  to  form  his  own  judgment  of 
him.  He  tells  where  he  is  living,  by  whom  he  is  employed, 
what  work  he  is  doing,  how  long  he  has  been  there;  gives  an 
idea  of  what  wage  he  is  making  and  the  names  of  references 

who  can  tell  more  about  him — trade,  bank,  or  character  refer- 
no 


HANDLING  APPLICATIONS  FOR  NEW  ATCOUNTS 

ences,  as  may  be  desired.  The  store's  salespeople  often  prove 
to  be  additional  sources  of  information  through  acquaint- 
ances. Letters  from  or  interviews  with  references  serve  to 
corroborate  points  in  the  customer's  statements.  Landlords 
and  other  tradesmen  with  whom  the  applicant  has  dealt  can 
often  give  valuable  sidelights  on  the  customer's  character. 
Clippings  from  newspapers  add  to  the  fund  of  information. 
Collectors  or  personal  investigation  of  reports  offer  other 
sources  of  information.  With  such  information  gathered  from 
every  available  source,  the  next  step  in  the  work  is  to  classify 
and  record  it,  filing  details  in  summary  form  for  immediate  use. 

Then  the  credit  man  is  in  a  position  to  pass  judgment 
on  an  account  and  fix  a  limit  upon  it  with  terms  which  he 
is  willing  to  allow. 

Finding  nothing  against  the  applicant,  if  the  order  is 
within  reason  it  may  be  passed  for  immediate  delivery,  using 
particular  care  to  send  it  out  promptly  and  accurately.  The 
new  customer  ought  to  be  made  to  feel  that  his  order  is  ap- 
preciated. He  gives  credit  references  promptly  and  willingly, 
and  will  permit  the  delivery  of  the  merchandise  instead  of 
asking  leave  to  take  it  with  him. 

There  is  apt  to  be  a  difference  in  the  case  of  out-of-town 
women  customers,  whose  credit  is  undeniably  good,  but  who 
think  that  they  should  be  as  well  known  in  town  as  they  are 
in  their  smaller  neighboring  community,  and  who  are  often 
provoked  when  references  are  requested  or  when  there  is  any 
delay  in  authorizing  their  purchases. 

In  such  cases  the  long-distance  telephone  or  a  telegram 
is  most  useful,  if  a  bit  costly,  to  speed  up  the  process  of 
verifying  facts  given  by  the  applicant,  and  thus  well  repaying 
the  effort  in  the  long  run. 

Need  for  Tact.  The  applicant  for  credit  must  be  handled 
very  carefully.  Most  women  know  so  little  about  the  re- 
quirements and  necessities  of  business  that  the  least  sug- 

111 


RETAIL  CREDITS  AND  COLLECTIONS 

gestion  of  brusqueness  in  handling  during  the  ensuing  inter- 
view at  the  credit  desk,  while  the  process  of  getting  needed 
credit  information  is  in  progress,  may  give  offense.  The  ap- 
plicant must  be  kept  entirely  at  ease,  and  yet  the  informa- 
tion must  be  obtained. 

There  is  no  more  important  step  toward  the  safeguarding 
of  an  account  against  future  delinquency  than  the  treat- 
ment accorded  the  new  applicant  for  credit.  This  treatment, 
beginning  at  the  counter,  may  be  illustrated  as  follows: 
A  customer,  after  making  her  purchases,  is  questioned: 

Salesman.  "Have  you  an  account?"  (Never  say,  "Is  this 
charge?") 

Customer.    "No,  but  I'd  like  to  open  an  account." 

Salesman.  "Will  you  wait  just  a  moment  to  meet  our 
credit  man,  please?"  or,  "Please  come  to  the  office  with  me 
to  arrange  details." 

It  was  formerly  generally  conceded  that  all  applicants  for 
credit  should  be  brought  to  the  credit  desk  for  a  personal 
interview.  Some  credit  men  have  even  taken  it  upon  them- 
selves to  train  the  salespeople,  and  department  heads,  as  well, 
to  ascertain,  if  possible,  the  customer's  name  on  the  way  to 
the  office;  they  can  then  properly  introduce  the  applicant 
to  the  man  in  charge,  state  the  purpose  of  his  errand,  and 
then  withdraw.  This  starts  the  interview  on  a  much  more 
friendly  basis  than  the  customary  "What's  your  name?" 
and  the  salesman,  leaving,  brings  the  interview  to  the  point 
where  it  may  be  continued  easily.  Opinions  differ  some- 
what nowadays  as  to  the  best  place  for  holding  such  inter- 
views. At  certain  high-grade  specialty-shops  it  is  custom- 
ary now  for  the  credit  man  to  go  to  the  department  to 
interview  the  new  customer.  Wherever  the  interview  is 
held,  however,  it  is  at  best  a  strictly  confidential  matter 
between  two  people  and  cannot  be  submitted  with  any 

degree  of  satisfaction  with  more  people  present. 

112 


HANDLING  APPLICATIONS  FOR  NEW  ACCOUNTS 

Questions  to  Be  Asked.  The  man  at  the  credit  desk 
divides  his  work  under  two  distinct  heads,  first  the  opening 
of  the  account,  and,  second,  the  collection  of  the  account. 
It  is  difficult  to  say  which  is  more  important.  Since  the 
opening  of  the  account  brings  the  customer  to  the  depart- 
ment for  the  first  time,  first  impressions  are  very  important 
because  they  are  always  lasting. 

It  is  difficult  to  say  exactly  what  information  it  will  be 
necessary  to  obtain  in  all  cases.  The  man  in  charge  must 
use  his  own  judgment  as  to  the  questions  to  be  asked. 

Ordinarily,  the  man  who  must  pass  on  the  application 
should  be  given  at  least  twenty-four  hours  before  rendering 
his  decision,  in  order  that  he  may  fully  investigate  the  facts 
given.  This  much  time  is  necessary  if  justice  is  to  be  done 
to  the  customer  and  to  the  store. 

Impressing  the  Terms  of  Credit.  Before  leaving,  after 
the  interview,  the  customer  should  definitely  understand 
the  terms.  This  is  the  best  insurance  against  future  mis- 
understandings. A  limit  should  be  placed  on  all  accounts 
because  of  the  fact  that  it  gives  the  quickest  warning  of 
approach  to  the  danger-point  in  the  use  of  the  account.  It  is 
well  to  get  from  the  customer  a  statement  of  the  highest  prob- 
able amount  that  the  account  will  reach  at  any  one  month. 

In  the  case  of  younger  persons,  if  they  have  no  definite 
idea  what  this  amount  will  be,  it  is  best  to  place  a  limit  and 
arrange  for  them  to  see  the  credit  man  if  at  any  time  later 
they  wish  to  exceed  this  amount.  In  some  cases  it  is  very 
necessary  to  tell  the  customer  what  the  limit  will  be.  In 
most  cases  it  would  be  a  mistake  to  do  so. 

Experience  would  indicate  that  an  applicant  will  answer 
questions  readily  if  they  are  asked  courteously  and  definitely 
and  as  though  you  not  only  expect  and  have  a  right  to  the 
information,  but  as  if  you  appreciate  it  as  well. 

In  some  stores  the  application  blanks  are  filled  out  in 

113 


RETAIL    CREDITS    AND    COLLECTIONS 

duplicate,  a  copy  in  each  case  being  sent  to  the  local  credit 
association  or  rating  bureau.  Others  have  printed  on  the 
blank  a  request  that  the  account  be  opened  stating  the  under- 
stood terms,  limits  of  purchases,  and  so  forth,  which  form 
it  is  customary  to  ask  the  applicant  to  sign.  Such  an  appli- 
cation form  is  given  here : 

FORM  OF  APPLICATION  FOR  CBEDIT  FHQa  A  OBOCER. 

Dat  e 191 


FULL  UAiE* 


Addraasj Apartment ». 

Occupation: 


Place  of  business  t. 
Or  where  employed:. 


Name  of  last  butcher: Address: 


Name  of  last  grocer: Address j_ 

of  present  land  lord: 

or  agent    : 


Own  property  at  address ; 

(weekly  (cash 

I  shall  make  it  a  practice  to  pay  ( Semi-monthly  (check  -  name  of  bank 

(monthly 


_Signature_ 


You  are  asked  to  give  u&  the  information  on  this  blank  so 
that  you  may  bs  assured  all  the  extra  convenience  of  a  charge  account 


You  understand,  of  course,  that  the  information  you.  have 
given  us  here  is  considered  by  us  as  confidential.     Its  sole  purpose 
is  that  wo  may  become  better  acquainted  with  you. 

We  hope  that  the  mutual  confidence  which  IB  established  may 
be  permanent  and  profitable  for  us  both.  . 

114 


HANDLING  APPLICATIONS  FOR  NEW  ACCOUNTS 

Use  of  References.  Names  of  personal  references  given 
by  the  applicant  at  the  time  of  the  interview,  while  they  are 
not  always  the  best  sources  of  dependable  credit  informa- 
tion, because  friends  may  always  be  expected  to  speak  well 
of  the  applicant,  offer,  nevertheless,  a  useful  means  for  fur- 
ther verification  of  credit  impressions  gained  from  other 
sources. 

The  applicant's  references  to  business  houses,  by  whom  he 
may  have  been  employed  or  with  whom  he  has  had  business 
dealings,  offer  a  stronger  and  more  accurate  line  on  his  relia- 
bility and  paying  habits. 

The  only  value  of  a  reference  of  any  kind  will  be  to  help 
to  determine  the  applicant's  earning  capacity  and  his  pay- 
ing habits. 

Verifying  the  Facts.  When  the  credit  office  has  secured 
the  information  wanted  as  a  basis  for  credit  and  when  judg- 
ment has  been  passed  after  the  applicant's  personal  inter- 
view, the  work  of  verifying  the  facts  or  getting  further  in- 
formation begins. 

The  first  step  in  such  cases  is  to  call  up  the  local  retail 
credit  interchange  bureau,  if  one  is  available,  or  call  for 
the  service  of  a  local  credit-reporting  agency  if  the  applicant 
is  in  business. 

The  initiating  of  these  investigations  takes  but  a  few 
moments  in  a  well-regulated  office.  Often  the  telephone 
offers  the  readiest  medium  for  securing  the  information 
wanted.  From  landlord,  from  bank,  or  from  employer  refer- 
ences, although  a  representative  from  the  credit  department 
may  find  it  desirable  to  supplement  such  inquiries  by  per- 
sonal calls  on  all  those  mentioned  in  the  applicant's  state- 
ment. 

When  the  investigation  is  completed  the  store's  records 
show,  in  addition  to  the  facts  given  by  the  applicant  him- 
self, what  salary  he  receives,  his  reputation  for  paying  his 

9  115 


RETAIL    CREDITS    AND    COLLECTIONS 

debts,  his  personal  habits,  his  steadiness  in  positions  he  has 
held,  what  rent  he  pays,  whether  his  house  is  owned  or 
partly  paid  for,  and  all  about  any  other  sources  of  income 
outside  of  his  regular  salary  or  wage.  It  may  be  necessary 
to  verify  claims  of  property  ownership  at  the  county  clerk's 
office. 

Need  for  Classification  of  Accounts.  As  the  surest 
measure  of  prevention  against  loss  through  budding  de- 
linquency, in  payment  of  accounts,  the  progressive  retailer 
makes  it  his  business  to  watch  his  accounts  closely,  classify- 
ing his  debtors  not  simply  as  honest,  dishonest,  or  prompt 
pay  and  slow  pay,  but  with  a  third  and  distinct  class  that 
may  be  called  "tricky"  debtors. 

Honest  debtors  may  be  classified  as: 

First — Prompt  pay. 

Second — Slow  pay. 

Third — Careless  and  indifferent. 

The  chief  value  of  such  a  classification  of  accounts  lies 
in  the  readiness  with  which  the  man  in  charge  may  decide 
when  to  shut  down  or  refuse  further  accommodation. 

Undoubtedly  the  greatest  loss  from  uncollectable  accounts 
is  due  to  delay — failure  to  take  proper  steps  to  collect  as 
soon  as  the  account  becomes  past  due.  Nearly  all  slow-pay- 
ing customers  intend  to  pay  when  the  debt  is  contracted, 
but  such  people,  having  limited  means  and  numerous  wants, 
find  it  difficult  to  make  ends  meet. 

They  cannot  pay  all  their  obligations  at  the  same  time; 
therefore  they  try  to  pay  a  little  here  and  a  little  there,  on 
the  claims  that  are  most  promptly  and  vigorously  brought 
to  their  attention.  The  result  is  that  if  a  customer  buys 
ten  dollars'  worth  of  merchandise  on  credit  from  each  of  two 
stores,  both  accounts  being  due  the  first  of  the  following 

month,  and  if  one  of  the  creditors  presents  his  bill  promptly 

116 


HANDLING  APPLICATIONS  FOR  NEW  ACCOUNTS 

when  due,  he  will,  nine  times  out  of  ten,  neglect  the  creditor 
who  is  lax  in  presenting  his  claims  in  favor  of  the  one  who 
makes  it  plain  that  the  obligation  may  not  be  put  off. 

The  policy  which  allows  a  customer  all  the  time  he  wants 
will  have  a  greater  tendency  to  drive  away  trade  when  the 
collection  is  pushed,  after  becoming  old,  than  one  which  in- 
sists on  reasonably  prompt  payments  at  all  times. 

When  an  account  is  allowed  to  run  too  long,  the  customer 
having  contracted  other  and  more  recent  bills,  which  are 
fresher  in  his  mind  and  which  he  is  more  inclined  to  pay 
than  the  older  ones,  he  gets  further  away  from  the  idea  of 
payment  every  day.  He  avoids  the  store  where  he  owes  an 
old  account  and  he  spends  his  cash  elsewhere. 

Turning  Down  Doubtful  Applications.  Since  the  credit 
which  the  retailer  is  asked  to  give  to  the  applicant  is  simply 
confidence  based  on  the  prospective  customer's  apparent 
ability,  sufficient  to  meet  the  requirements,  there  must  be 
a  definite  and  substantial  foundation  for  this  trust. 

In  most  cases  where,  after  careful  investigation,  it  is 
necessary  in  the  store's  interest  to  refuse  a  charge  account, 
the  decision  will  be  conveyed  by  letter  to  the  applicant 
rather  than  in  a  personal  interview. 

In  any  case,  the  denial  must  be  couched  in  careful  lan- 
guage, without  abruptness  and  with  every  effort  to  give  the 
least  possible  offense. 

The  letter  turning  down  the  application  should  be  written 
as  promptly  as  possible  after  the  decision  has  been  reached. 
In  most  cases  of  new  accounts  which  must  be  declined,  the 
store  has  definite  reasons  for  the  refusal  to  grant  credit  at  all 
or  to  grant  it  only  up  to  a  certain  limit.  These  letters  de- 
clining to  accept  such  applications  and  in  turn  soliciting  a 
continuation  of  business  on  a  cash  basis  require  a  most 
careful  diction,  exactness  of  expression  and  courtesy,  giving 
detailed  reasons  for  the  action. 

117 


RETAIL  CREDITS  AND  COLLECTIONS 


May  29,  1918 


Mr.  John  Do ey 

784    Broadway; 
N.  Y.  City 
De&r  Sir:- 

Referring  to  your  request  for  an  account 
we  write  to  inform  you  that  the  references  given  while 
apeaklng  highly  of  you,  give  us  very  little  information 
a*  to  your  financial  responsibility,  anl  ad  it  i»  on  this 
point  we  aaak.  information  v»e  ask  to  be  .fnvored  with  .a4- 
iition&l  teferenoea, 

Yours  truly, 
John  lanaiailter  Ke^  York 


118 


HANDLING  APPLICATIONS  FOR  NEW  ACCOUNTS 


liay  29,  1918 


Mr.  John  Doe, 
784  Broadway, 
N.  *.  City 
Dear  Sir:- 

We  esteem  It  a-  privilege  to  enter  your 
naros  on  our  list  of  charge  customers,  and  we  shall 
be  pleased  to  honor  such  orders  as  we  may  be  favored 
with;  bills  being  rendered  monthly. 

Trusting  that  you  will  find  it  convenient 
to  avail  yourself  Of  the  facilities  of  our  business, we 
renain, 

Yours  truly, 
John  Wacanfiker  Ue»  York 
By 
Credit  Manager 


119 


RETAIL  CREDITS  AND  COLLECTIONS 

While  they  are  dictated  to  avoid  giving  offense,  they 
should  not  weakly  convey  the  decision  to  refuse  credit.  The 
explanation  must  be  earnest  and  full  of  common  sense. 
There  must  be  no  reflection,  direct  or  indirect,  upon  the 
applicant's  intentions  where  the  reason  for  the  turn-down 
may  be  ascribed  to  circumstances  which  confront  him  and 
which  are  beyond  his  control. 

Any  reference  in  the  letter  to  the  rating  bureau,  as  the 
authority  on  the  basis  of  whose  report  the  reader's  applica- 
tion is  being  refused,  should  be  avoided  because  of  the  fact 
that  it  puts  unpleasant  emphasis  on  the  applicant's  past 
record  elsewhere,  giving  him  needless  cause  of  resentment, 
and  at  the  same  time  discloses  to  him  the  direction  from 
which  unfavorable  reports  on  his  habits  of  non-payment  are 
coming.  There  is  a  certain  amount  of  healthy  influence  on 
the  mind  of  the  unacceptable  applicant  from  the  turn- 
down, courteous  but  firm,  which  leaves  him  in  doubt  as  to 
the  real  source  of  the  information  on  which  the  refusal  is 
based. 

The  experience  of  being  turned  down  is  not  necessarily 
a  new  one  with  the  undesirable  applicant  who  is  not  entitled 
to  credit.  He  has  quite  likely  been  refused  before  and  com- 
pelled to  pay  cash  for  his  purchases.  He  will,  however,  in 
such  an  event,  naturally  deal  with  the  store  that  offends  him 
least. 

Classification  of  Accounts  for  Ratings.  One  Eastern 
department  store  classifies  its  accounts  by  ratings  as  follows : 

1.  Employees  accounts. 

2.  Temporary  or  "accommodation"  accounts. 

3.  $25  accounts. 

4.  $50  accounts. 

5.  $100  accounts. 

6.  $500  accounts. 

7.  Unlimited  accounts. 

120 


HANDLING  APPLICATIONS  FOR  NEW  ACCOUNTS 

The  form  on  which  new  accounts  are  entered  is  shown 
here,  with  the  form  to  carry  additional  classification  data  as 
compiled  later. 

NEW  ACCOUNT 

No. 

Name 

Residence 


Business 


Reference 


Remarks 


121 


RETAIL  CREDITS  AND  COLLECTIONS 


ADDITIONAL 


No. 


Name 


Residence 


Business 


Previous  Rating 


Present  Rating 


Special  Rating 


Reference 


Remarks 


122 


HANDLING  APPLICATIONS  FOR  NEW  ACCOUNTS 

Some  stores  do  not  use  a  regular  classification  of  credit 
limits,  but,  instead,  make  use  of  a  secret  code  to  designate 
the  rating  of  each  account.  Instruction  as  to  the  limit  is 
in  such  cases  given  verbally  to  the  store's  authorizers,  doing 
away  with  any  printed  list  of  the  limits  fixed. 

Fixing  Credit  Limits  for  Individual  Buyers.  As  has 
already  been  suggested,  every  account  at  the  time  it  is 
opened  should  have  a  definite  limit  placed  upon  it  beyond 
which  in  the  judgment  of  the  credit  office  it  will  be  unwise 
to  O.  K.  purchases  on  charge  accounts. 

This  is  accomplished  best  by  asking  the  customer  what 
limit  he  himself  wishes  to  place.  This  amount  should  be 
mentioned  again  in  the  letter  advising  the  applicant  that 
the  account  is  opened. 

These  limits  are  difficult  to  watch,  but  they  can  be  entered 
on  the  credit  card,  the  ledger,  and  the  margin  of  the  bill. 
There  is  no  more  reason  why  limits  should  not  be  placed  on 
all,  new  accounts,  especially  the  minor  ones,  than  there  would 
be  for  a  bank  to  make  loans  of  indefinite  amounts. 

When  purchases  for  any  one  month  have  reached  the  limit 
set,  the  account  should  be  referred  to  the  credit  manager. 
It  acts  as  a  danger  signal,  calling  attention  to  the  account 
and  automatically  bringing  all  further  purchases  to  the  head 
of  the  credit  office  for  approval.  When  this  stage  is  reached, 
the  limit  may  be  changed,  or  the  purchases  held  until  satis- 
factory arrangements  are  made  by  the  customer  for  further 
credit. 

Of  course,  with  thousands  of  accounts  on  his  books, 
changing  daily,  it  is  impossible  for  the  credit  man  to  keep 
informed  regarding  the  exact  status  of  each  of  them. 
But  with  a  limit  placed  on  each  card  or  bill,  the  book- 
keeper or  billing-clerk  can  notify  the  credit  man  the 
moment  the  limit  is  reached. 

An  Ohio  merchant  who  does  a  $35,000  business  a  year, 

123 


RETAIL  CREDITS  AND  COLLECTIONS 

three-quarters  of  it  on  a  credit  basis,  and  loses  but  $150  in 
bad  accounts,  says: 

I  find  that  the  best  time  to  talk  to  a  customer  is  when  an  account 
is  first  opened.  Granting  credit  seems  like  a  favor  then.  I  make  it 
plain  that  the  terms  will  be  rigidly  enforced,  and  it  is  seldom  that 
an  applicant  will  not  agree.  Of  course  it  is  necessary  to  use  some 
discrimination  in  fixing  the  limit,  but  by  learning  a  man's  salary 
and  the  time  of  his  pay-day  I  don't  have  much  difficulty.  I  arrange 
it,  too,  so  that  my  clerks  know  whether  or  not  my  customer  is  in 
good  standing.  I  use  a  filing-cabinet  for  the  original  sales  slips 
as  an  account  register.  The  total  is  carried  forward  each  time  a 
new  slip  is  made  out,  so  the  last  slip  always  gives  the  total  amount 
due.  I  attach  a  red  cardboard,  showing  the  time  and  amount 
limits,  to  the  clasps  that  hold  the  sales  slips  in  place.  If  the  amount 
of  the  purchase  added  to  that  already  owed  exceeds  the  limit  shown 
on  the  red  card,  the  clerk  notifies  the  customer. 

When  to  Raise  the  Limit.  If  a  customer  keeps  his  ac- 
count strictly  up  to  date,  the  retailer  will  probably  be  willing 
to  extend  his  limit  of  credit  when  requested.  This  limit 
should  not  be  raised,  however,  until  he  has  made  proper  ap- 
plication, because  the  limit  serves  to  keep  a  check  on  the 
account  that  would  not  be  available  otherwise,  and  impresses 
the  customer  with  the  conviction  that  credit  is  a  precious 
possession  that  must  be  safeguarded  both  by  the  giver  and 
by  the  receiver. 

Sometimes  it  is  better  to  refuse  to  raise  the  credit  limit 
even  of  good-paying  customers.  The  merchant's  acquaint- 
ance with  them  might  cause  him  to  decide  to  let  their  trade 
go  elsewhere.  There  isn't  much  likelihood  of  losing  trade 
by  such  a  refusal  to  raise  credit  limits,  because  it  is  not  diffi- 
cult usually  to  demonstrate  to  any  customer  that  such  a 
raise  would  not  be  for  his  best  interests.  The  average  person 
is  honest.  When  he  defaults  in  payment  it  is  usually  because 

he  has  gotten  beyond  his  depth  rather  than  because  he  is 

124 


HANDLING  APPLICATIONS  FOR  NEW  ACCOUNTS 

dishonest.  By  keeping  customers  well  down  to  safe  limits, 
therefore,  the  merchant  is  doing  his  customers  a  real  service 
and  at  the  same  time  minimizing  his  chances  for  loss.  With 
unlimited  credit  at  a  store  many  an  honest  person  is  tempted 
to  buy  recklessly.  It  is  easy  to  buy  things  and  have  them 
charged.  When  prompt  settlement  is  not  insisted  upon 
these  easy-going  customers  doubtless  will  add  still  more  to 
their  unpaid  bills.  The  amount  may  easily  get  beyond  their 
ability  to  pay.  They  get  discouraged  and  then  go  to  another 
store.  Thus  the  retailer  loses  both  trade  and  the  money 
due  him. 


VIII 

AUTHORIZING  CHARGE  PURCHASES  AND  KEEPING  UP 
CREDIT  RECORDS 

Classification  of  Purchases.  A  Montreal  merchant  who 
was  talking,  not  long  ago,  to  the  credit  man  of  a  wholesale 
house,  pointed  out  a  woman  entering  his  competitor's  store 
just  across  the  street,  and  said  in  an  aggrieved  tone:  "That 
woman  ought  to  be  buying  here.  We  made  her  wait  a  little 
longer  than  she  thought  was  necessary  to  O.  K.  her  order 
for  charge  the  other  day,  and  now  she's  quit  coming  here." 

It  is  not  unlikely  that  the  other  merchant  to  whom  this 
customer  had  gone  could  tell  a  similar  story  about  people 
leaving  him  for  his  competitor's  store  across  the  way  for  the 
same  reason. 

This  question  of  investigating  and  checking  orders  is  one 
of  serious  perplexity  to  the  retail  merchant  generally.  "Any- 
thing that  helps  to  cultivate  the  customer's  good-will,  to 
make  it  easier  and  more  pleasant  to  buy,  especially  in  these 
times  of  keen  competition,  may  be  recommended  as  an  asset 
to  the  retail  store,"  remarked  one  of  the  executive  heads  of  a 
well-known  New  York  specialty-shop  recently. 

His  observation  was  made  in  connection  with  a  discussion 
of  the  unnecessary  inconveniences  and  the  annoying  in- 
cidents to  which  customers  are  often  subjected,  but  which 
might  easily  have  been  avoided,  and  repetition  of  which 

weans  many  patrons  annually  away  from  a  store's  clientele. 

126 


CHARGE  PURCHASES  AND  CREDIT  RECORDS 

Problem  to  Prevent  Delays  in  "  Charge  Taken  "  Sales. 
As  he  went  on  to  explain,  the  more  desirable  women  cus- 
tomers are  usually  most  easily  offended.  For  example,  there 
is  the  woman  who  hasn't  much  money,  but  who  is  exceedingly 
sensitive  perhaps  because  of  that  fact.  She  is  quick  to  resent 
anything  on  the  part  of  an  employee  that  may  be  interpreted 
as  a  slight.  Such  women  are  usually  good  customers,  pay 
scrupulously  all  that  they  owe  as  soon  as  they  can — again 
a  matter  of  pride.  No  sane  storekeeper  will  permit,  if  he 
can  help  it,  the  loss  of  a  single  customer — especially  a  woman 
customer.  Probably  the  policy  causing  more  losses  of  cus- 
tomers than  any  other  is  one  where  the  possessor  of  a  charge 
account  is  offended  at  being  detained  unnecessarily  in  a 
store  aisle  while  her  credit  is  obviously  being  "  looked  up." 

The  customer  feels — is  made  to  feel — by  the  fussing  around, 
that  she  is  under  suspicion.  It  may  be  supersensitiveness, 
but  nine  women  out  of  every  ten  experience  this  feeling 
under  these  circumstances. 

It  is  a  storekeeper's  duty  to  see  that  the  work  of  years  on 
his  part  to  build  up  a  store's  trade  is  not  pulled  down  by  such 
tactless  lack  of  consideration  on  the  part  of  his  employees. 

Every  customer  has  the  feeling,  though  it  is  not  neces- 
sarily a  well-justified  one,  that,  after  having  had  her  ability 
to  pay  for  merchandise  purchased  on  credit  looked  up  when 
she  made  her  application  for  a  charge  account,  she  is  free  to 
use  this  account  without  being  kept  under  surveillance,  so 
to  speak.  Of  course  the  credit  department  that  knows  its 
business  will  maintain  a  reasonable  amount  of  such  "espion- 
age" over  every  one  of  the  accounts. 

Placing  Responsibility  for  Identification.  The  first  es- 
sential to  authorizing  of  "Charge  taken"  purchases  is  the 
proper  identification  of  the  purchaser  as  a  customer  with  a 
charge  account  in  good  standing,  or  one  entitled  to  buy  for 

such  a  customer.    In  most  department  and  specialty-stores 

127 


RETAIL  CREDITS  AND  COLLECTIONS 

the  floor  man  is  given  responsibility  for  authorizing  such 
purchases  up  to  a  certain  limit — say  twenty-five  dollars. 

It  will  be  seen  that  much  of  the  favorable  impression 
of  a  store's  manner  of  treating  its  customers  will  be  reflected 
in  the  attitude  of  the  floor  man  to  the  customer  on  such  oc- 
casions. He  is  usually  content  with  a  simple  question  to 
the  purchaser  as  to  his  identity,  backed  by  the  display  on 
the  customer's  part  of  some  form  of  identification  in  the 
shape  of  a  letter  addressed  in  the  name  and  address  given 
for  the  charge. 

In  some  stores  clerks  in  certain  departments  are  permitted 
to  authorize  charge  purchases,  as,  per  example,  Lord  & 
Taylor,  New  York  City,  when  purchases  are  made  on  the 
store's  main  floor  and  the  amount  does  not  exceed  ten  dollars. 

The  use  of  coin  systems,  by  which  the  possessor  of  a  charge 
account  has  been  provided  with  a  metal  coin  to  indicate  an 
authorization  to  purchase  within  certain  limits,  will  serve 
to  spare  the  customer  the  need  for  further  indentification  and 
its  resulting  delay  and  occasional  embarrassment. 

Buyers  and  other  store  executives  are  frequently  allowed 
to  authorize  purchases  also. 

Most  customers  realize  that  the  store  places  a  limit  on 
the  amount  they  can  charge,  but,  when  they  have  never  even 
approached  the  limit,  and  have  always  settled  with  fair 
promptness,  to  be  obviously  " looked  up"  at  every  small 
purchase  is,  to  say  the  least,  chilling  in  its  effect,  making 
one  feel  that  she  is  not  receiving  the  treatment  to  which 
her  standing  with  the  store  has  entitled  her. 

The  merchant  who  fails  to  assume  a  "  put-yourself-in- 
the-other-f ellow's-place  "  attitude  nowadays  doesn't  get  very 
far  in  the  retail  business. 

The  Card  System  of  Authorizing  Purchases.  The  way 
to  prevent  ill-feeling  on  the  customer's  part,  and  at  the  same 
time  safeguard  the  store's  interest,  is  simple  enough.  One 

128 


CHARGE  PURCHASES  AND  CREDIT  RECORDS 

New  York  store  uses  the  not  unusual  method  of  furnishing 
the  successful  applicant  for  a  charge  account  with  a  numbered 
ticket  containing  the  firm  name,  a  lithographed  design,  and 


4e  made  in 

fi#*ioc£  0^0110  uocvx.       tyfa&n/  fvtteben,6z&o9l  Af  4A*fr  caret  /no 
fatf  fuxMntent  tai/J  6e  neaufoeet  amd  ito  eacfaa,  cAcww  €»iM  6e  made  &* 

f  f        <f  9  ff  f 


the  customer's  number  printed  at  the  top  or  bottom.  The 
customer's  name  does  not  appear  on  the  card.  Provided 
her  account  is  in  good  condition,  the  customer  can  always 
secure  merchandise  at  the  counter  on  presentation  of  the 
ticket,  without  reference  to  the  credit  department.  The 
bookkeepers  receive  a  slip  of  the  usual  sort,  containing  space 
for  the  credit  limit  or  change  of  limit,  and  other  necessary 
data  about  the  customer  and  the  account.  The  receipt  of 
this  slip  is  the  bookkeeper's  authority  to  open  the  account. 
Should  the  limit  be  reached,  he  immediately  notifies  the 
man  at  the  credit  desk  by  sending  him  this  slip,  with  the 
required  information  on  it. 

In  one  of  the  department  stores  of  Everett,  Washington, 
this  credit-card  system  has  been  worked  out  very  effectively. 
Its  credit  customers  are  divided  into  four  classes,  designated 

by  A,  B,  C,  and  D.    These  letters  appearing  on  the  card 

129 


RETAIL  CREDITS  AND  COLLECTIONS 

indicate  the  amount  of  credit  to  which  each  customer  is  en- 
titled. They  do  not  authorize  unlimited  credit,  as  might 
be  supposed,  but,  on  the  contrary,  are  intended  only  to 
take  care  of  ordinary  purchases  and  set  the  limit  for  one 
day's  shopping  at  a  time. 

Class  A,  for  example,  indicates  that  the  customers  holding 
such  cards  are  entitled  to  credit  to  the  amount  of  five  dollars 
at  any  one  time.  Class  B  calls  for  ten  dollars  credit.  Class  C, 
fifteen  dollars.  Class  D,  twenty-five  dollars. 

So  the  card  bearing  the  letter  A  prefixed  to  a  number  will 
limit  the  holder's  purchases  to  five  dollars  at  any  one  time, 
unless  special  arrangements  are  made.  The  number  791, 
for  example,  which  follows  the  letter  A  on  a  card,  means 
simply  that  there  are  791  cards  out  in  this  class. 

Accompanying  the  credit  card  was  a  letter  sent  to  the 
customer,  explaining  the  method  of  using  these  cards.  Here 
it  is: 

Dear  Mrs.  

We  take  pleasure  in  handing  you  herewith  our  credit  card. 

Presentation  of  this  card  at  the  time  of  charging  your  purchase 
will  relieve  you  of  any  wait  or  annoyance  in  having  your  items 
passed  through  the  credit  department,  and  in  this  way  we  will  be 
able  to  serve  you  quicker  and  better  than  ever. 

Possession  of  this  card  does  not  necessarily  mean  unlimited 
credit,  but  the  intent  is  to  take  care  of  your  ordinary,  every-day 
purchases.  Extraordinary  purchases  will  be  arranged  with  the 
Credit  Department,  as  in  the  past. 

In  case  of  loss  of  your  card,  please  notify  us  at  once,  so  that 
we  may  cancel  it  and  issue  you  a  new  one. 

Your  co-operation  in  this  matter  will  be  greatly  appreciated. 

Yours  for  better  service, 


Credit  Department. 

Terms:  Dry-goods  and  Millinery,  30  days. 
Cash:  Furniture,  Carpets,  and  Crockery. 
30  Days:  Cash  or  payments. 

130 


CHARGE  PURCHASES  AND  CREDIT  RECORDS 

Naturally,  if  any  one  wants  to  buy  a  complete  outfit  of 
furniture  or  something  of  that  sort,  he  confers  with  the  credit 
department  personally,  anyway,  so  there  is  no  need  of  ex- 
plaining further.  There  is  no  question  but  what  the  credit 
cards  speed  up  purchases.  If  a  man  has  his  pass  all  ready 
when  he  goes  through  the  gate,  the  ticket-taker  does  not 
stop  to  question  him  regarding  his  credentials,  but  if  he  has 
left  it  home  he  naturally  has  to  prove  his  identity  before 
he  can  be  allowed  to  come  in. 

The  Credit-authorizer's  Book.  In  many  larger  stores 
there  is  an  automatic  credit  system  in  force,  whereby  a 
machine  and  tubes  do  the  work  of  these  cards,  but  in  many 
stores  this  is  not 'feasible  and  is  too  expensive.  In  fact, 
this  was  exactly  the  case  in  this  store.  It  was  found  that 
it  would  be  too  much  labor  and  expense  to  install  this  auto- 
matic system,  so  the  card  idea  was  worked  out  instead,  and 
has  been  proving  very  successful. 

Now  the  customer  presents  her  card,  the  clerk  notes 
down  the  number,  and  the  credit  is  automatically  granted. 
When  the  slip  comes  into  the  credit  department  it  is  looked 
up  in  a  book,  with  all  the  numbers  arranged  in  order,  fol- 
lowed by  the  name  of  the  person  to  whom  the  number  be- 
longs. In  another  book  are  entered  the  names  of  people 
to  whom  cards  have  been  issued,  with  their  numbers  and 
the  class  of  credit  to  which  they  are  entitled.  There  is  no 
possibility  of  a  mistake,  for  if  a  person  wilfully  or  unin- 
tentionally gave  the  wrong  number,  it  would  be  discovered 
when  the  slip  was  checked  up. 

The  inspector  is  supplied  with  a  printed  book,  corrected 
daily,  showing  the  condition  up  to  the  moment  of  the  account 
of  each  customer  on  the  store's  books.  This  credit-book  has 
a  hundred  numbers  on  each  page,  with  spaces  for  characters 
to  indicate  the  account's  condition.  Where  the  space  is 
open,  merchandise  may  be  delivered  within  the  amount, 
10  131 


RETAIL  CREDITS  AND  COLLECTIONS 

without  reference  to  the  credit  department,  up  to,  say, 
seventy-five  dollars. 

Suppose  there  is  a  check  mark  after  the  number;  then 
goods  up  to  the  value  of  five  dollars  only  may  be  delivered 
without  asking  permission  at  the  credit  desk.  If  a  cipher 
follows  the  number,  it  means  that  goods  worth  more  than 
two  dollars  should  not  be  delivered  without  first  consulting 
the  credit  department,  while  a  double  "X"  after  the  num- 
ber means  that  nothing  at  all  should  be  delivered  without 
the  O.  K.  of  the  credit  office. 

Each  page  of  the  book  is  numbered  at  the  top,  so  if  the 
inspector  is  searching  for,  say,  No.  7,542  he  would  refer  to 
page  75  and  run  down  to  the  No.  42  on  that  page. 

It  is  easy  to  maintain  such  a  record,  because  no  account 
need  be  referred  to  except  those  whose  status  has  changed 
during  the  day.  The  notations  are  made  in  pencil  so  they 
may  be  erased  whenever  changes  are  required.  By  this 
means  customers  are  served  rapidly  and  are  not  aware  that 
they  are  being  "looked  up,"  leaving  the  store  satisfied  and 
feeling  that  they  are  receiving  personal  favors  from  the  store. 

It  is  part  of  the  plan,  while  the  inspector  is  getting  the 
desired  information  about  the  customer  who  has  come  in 
to  charge  a  purchase,  to  have  the  saleswoman  distract  her 
attention  by  trying  to  show  her  something  which  she  thinks 
may  please  her. 

Every  inspector  makes  it  his  business  to  be  readily  ac- 
cessible to  call  from  the  salespeople,  to  avoid  delays  in 
running  through  his  books  for  the  customer's  record.  As  most 
people  having  charge  accounts  like  to  keep  them  as  an  ac- 
commodation, such  accounts  are,  on  the  whole,  rarely 
abused.  Records  are  so  filed  in  the  credit  office  that  the 
response  to  the  inspector's  call  for  information,  over  the 
'phone,  is  given  almost  instantaneously. 

If  a  customer's  account  is  found  to  be  in  a  condition  that 

132 


CHARGE  PURCHASES  AND  CREDIT  RECORDS 

does  not  warrant  an  extension  of  credit  at  the  time,  the 
customer  is  asked  politely  to  go  to  the  credit  office,  with  the 
explanation  "we  have  orders  this  week  to  refer  all  charge 
accounts  to  the  credit  office."  The  customer,  not  feeling  as 
if  she  had  been  singled  out  and  therefore  resentful,  does  as 
requested,  where  she  is  brought  into  contact  with  the  man  in 
charge  for  the  purpose  of  making  an  adjustment.  A  special 
telephone  is  provided  in  each  section  or  department  for  the  in- 
spector's use,  connecting  with  the  credit  office.  The  customer 
is  never  allowed  to  overhear  the  inspector's  conversation. 

Authorizing  "  Charge  Sent "  Purchases.  In  the  case  of 
small  articles,  they  are  packed  at  once  and  credit  is  author- 
ized by  a  credit-authorizer  stationed  in  the  delivery  depart- 
ment for  that  purpose. 

In  some  stores  where  old,  experienced  men  are  employed 
authorizers  may  depend  largely  on  memory  in  making  their 
decision.  There  have  been  cases  of  marvelous  memories 
developed  in  long  years  of  service  by  such  men  by  which 
the  very  minimum  of  errors  have  resulted.  In  other  cases 
a  Rand  index  or  some  similar  type  of  visible  index  for  ready 
reference  has  been  used  very  effectively. 

In  the  cases  of  large  articles,  or  where  alterations  are  to 
be  made,  the  sales-slip  is  sent  to  the  credit  department  to 
be  authorized  before  the  package  is  wrapped.  The  O.  K. 
telephone  may  be  used  for  such  cases,  also,  although  this 
is  seldom  done  except  at  the  rush  end  of  the  day. 

Watching  for  Changes  in  Customer's  Credit  Standing. 
Having  once  passed  favorably  on  an  application  for  credit, 
it  does  not  follow  that  the  conditions  surrounding  the  ac- 
count are  always  going  to  justify  the  same  confidence  in  the 
customer's  paying  prospects. 

Inasmuch  as  everything  about  us  is  subject  to  constant 
change,  it  follows  that  no  credit  office  can  afford  to  relax 

one  whit  of  its  vigilance  after  the  account  is  open. 

133 


RETAIL    CREDITS    AND    COLLECTIONS 

Naturally  the  changes  that  develop  to  affect  the  paying 
power  of  a  customer  will  be  most  apparent,  and  will  be 
brought  most  directly  to  the  notice  of  the  man  at  the  credit 
desk  in  the  process  of  following  the  customer's  account 
month  by  month,  by  the  attention  he  pays  to  bills  and  state- 
ments for  purchases  made. 

With  hundreds  of  accounts  to  handle,  however,  it  would 
be  hardly  reasonable  for  the  credit  office  to  note  quickly 
enough  the  symptoms  of  approaching  delinquency  without 
the  help  of  a  carefully  organized  procedure  for  gathering 
and  recording  additional  data  regarding  customers  which 
might  eventually  affect  the  quality  of  the  account. 

Various  measures  are  taken  to  enable  the  man  responsible 
for  the  credit  management  of  the  store  to  keep  watch  over 
his  accounts.  The  service  of  the  news-clipping  bureaus, 
for  example,  contributes  an  often  unsuspected  flow  of  in- 
formation about  people,  more  or  less  prominent  or  notorious 
in  the  community.  Systematic  study  of  the  court  records 
of  actions  brought  and  judgments  rendered  offers  many  an 
illuminating  side-light  on  the  affairs  of  a  customer  which 
may  have  a  direct  bearing  on  his  account  standing. 

Records  of  real-estate  transactions,  registering  of  deeds, 
and  information  of  the  kind  which  would  indicate  a  sudden 
change  in  financial  condition,  have  a  definite  meaning  for 
the  wide-awake  credit  office. 

Keeping  Credit  Information  Up  to  Date.  To  keep  the 
credit  files  clear  of  dead  material,  and  to  show  at  a  glance 
the  latest  report  on  the  financial  condition  of  any  customer, 
one  credit  man  devised  a  special  folder  with  flaps  carrying 
punched  holes  for  the  insertion  of  paper-fasteners. 

Papers  which  were  to  be  kept  as  part  of  the  permanent 
record  were  attached  to  one  flap  at  one  end  of  the  folder, 
while  ordinary  papers,  such  as  requests  for  payments  and 

adjustment  letters,  all  more  or  less  temporary  in  their  bear- 

134 


CHARGE  PURCHASES  AND  CREDIT  RECORDS 

ing  upon  the  account,  were  attached  to  the  other  end  of  the 
folder,  the  idea  being  that  they  may  be  taken  off  and  de- 
stroyed as  a  unit  at  th$  end  o£  six  months. 

Spaces  were  provided  on  the  folder  for  name  and  address, 
credit  limit,  and  other  information  of  the  kind  for  use  in 
consulting  the  records.  In  columns  additional  spaces  were 
made  to  indicate  the  exact  condition  of  the  account  for  each 
month. 

It  was  customary  for  the  credit  man  in  each  case  to  study 
carefully  each  individual's  account  folder  on  the  average  of 
every  three  or  four  months,  make  a  new  summary  and  digest 
of  the  condition  of  the  account  which  would  afford  the  latest 
decision  in  reference  to  the  treatment  to  be  accorded  this 
customer. 

Reviving  Dormant  Accounts.  More  than  once  in  the 
statement  of  the  retailer's  credit  problem  it  has  been  shown 
how  closely  the  work  at  the  credit  desk  affects  the  store's 
other  activities. 

Not  the  least  important  of  its  functions  is  to  watch  the 
buying  history  of  its  accounts,  with  the  idea  of  singling 
out  those  which  for  one  reason  or  another  have  become  in- 
active or  dormant  through  non-use.  Realizing  that  an 
account  which  it  is  worth  while  to  accept  in  the  first  place 
is  worth  keeping  active,  and  keeping  in  mind  the  obvious 
fact  that  it  may  take  months  of  excellent  service  to  the  cus- 
tomer before  an  account  may  be  developed  into  one  which 
will  repay  handling,  it  is  only  common  sense  on  the  part 
of  the  store's  manager  to  go  out  of  his  way  to  find  out  why 
once  good  and  profitable  accounts  occasionally  lapse  into 
inactivity. 

An  excellent  example  of  one  store's  effort  to  revive  ac- 
counts and  to  bring  them  back  into  activity  is  the  one  repro- 
duced here,  the  letter  written  by  Lord  &  Taylor  of  New 

York,  which  was  accompanied  by  an  addressed  envelope, 

135 


RETAIL  CREDITS  AND  COLLECTIONS 

ready  stamped,  and  a  plain  bristol-board  card  on  which  the 
reader  of  the  letter  was  invited  to  make  his  reply.  This 
letter  is  said  to  have  brought  a  high  percentage  of  returns 
and  purchases  of  nearly  $200,000  from  former  customers. 

Lord  &  Taylor 

NEW  YORK. 
EXECUTIVE   OFFICES 

April  29tb  1918. 


«iy  dear  Mrs. 

Our  Credit  Manager  has  just  stated  to  me 
that,  Judging  from  your  account,  we  have  not  had  the 
pleasure  of  serving  you  for  the  past  several  months. 
We  are  inclined  to  think  that  this  must  be  due  to 
your  absence  from  the  city,  but  our  interest  in  your 
account,  and  in  serving  you  satisfactorily,  prompts 
me  to  inquire  if  it  is  possible  the  reason  has  to  do 
with  our  merchandise  or  our  service. 

We  thank  you- in  advance  for  the  courtesy 
of  your  reply,  and  we  enclose  a  self-addressed, 
stamped  envelope  for  your  convenience. 

I  take  the  opportunity  of  enclosing  some 
interesting  advance  information  about  an  important- 
occasion  which  is  to  occur  shortly.  This  event  has 
not  yet  been  announced  to  the  general  public  and  I 
think  you  may  wish  to  participate  in  it  before  the 
general  announcement. 

Very  truly  yours, 

LORD,  ft  TAYLOR 


urer 


IX 

HANDLING  COMPLAINTS  AND  ADJUSTMENTS 

National  Conservation  and  the  Handling  of  Returned 
Goods.  An  investigation  conducted  recently  by  the  Com- 
mercial Economy  Board,  whose  work  is  being  carried  on  by 
the  War  Industries  Board  at  Washington,  clearly  indicated 
that  a  large  amount  of  unnecessary  work  was  involved  in 
the  handling  of  returned  goods.  Through  competition  in 
service  the  original  privilege  of  returning  merchandise  was 
greatly  abused.  In  many  general  stores  the  returns  were 
found  to  be  from  20  per  cent,  to  25  per  cent,  of  the  total 
savings.  In  well-systematized  stores  goods  passed  through 
many  hands  from  the  time  sales  were  made  until  they  were 
actually  delivered.  They  had  to  pass  through  the  same 
number  of  hands  when  returned,  and  obviously  through  the 
same  number  for  resale.  This  practice  made  a  large  amount 
of  unnecessary  labor,  which  in  this  emergency  should  be 
avoided.  It  was,  therefore,  recommended  to  retail  mer- 
chants that  customers  be  encouraged  to  inspect  merchandise 
carefully  and  determine  definitely  whether  it  suited  their 
purpose  or  not  before  purchasing,  and  that  the  privilege 
of  returning  it  be  restricted  to  three  days. 

Many  stores  in  this  country  are  now  finding  the  two-day 
restriction  entirely  satisfactory,  but  in  a  conference  with 
merchants  it  was  decided  that  three  days  would  be  entirely 
fair  to  all  concerned,  and  as  it  means  three  days  in  the  cus- 

137 


RETAIL    CREDITS    AND    COLLECTIONS 

tomer's  possession,  it  can  be  applied  with  equal  fairness  to 
all  customers,  whether  living  close  to  the  store  or  at  a  dis- 
tance. 

Reports  of  the  operation  of  this  plan  have  been  received 
from  many  stores  in  our  large  cities,  which  indicate  that  the 
credits  for  returned  merchandise  have  been  reduced  by  an 
average  of  36  per  cent.  This  decrease  has  enabled  these 
stores  to  utilize  the  service  of  many  employees  for  other  work. 

The  Story  of  the  Rice-boiler.  One  of  the  larger  depart- 
ment stores  in  the  Middle  West  has  had  a  rule,  in  common 
with  other  department  stores  in  the  same  city,  that  after 
five  days  no  goods  may  be  returned  by  the  purchaser  for 
any  reason  whatever,  and  that  in  any  event  goods  returned 
must  always  be  in  the  original  package. 

One  of  the  best  women  customers  of  this  store  bought  some 
household  utensils,  among  which  was  an  enamelware  rice- 
boiler.  The  boxes  were  opened  by  the  housewife,  the  goods 
taken  out,  and  the  boxes  thrown  away.  Since  she  had  no 
use  for  the  boiler  for  over  a  week  after  its  purchase,  she  did 
not  discover  that  a  large  piece  of  enamel  had  been  chipped 
off  inside  the  boiler,  making  it  practically  worthless. 

The  housewife  called  up  the  store  and  asked  them  to  send 
a  new  boiler  and  to  take  back  the  damaged  one.  After  being 
referred  from  one  person  to  another,  until  her  patience  was 
exhausted,  she  was  finally  asked  to  give  the  number  on  the 
bill  sent,  the  date,  and  a  lot  of  additional  information  that, 
to  the  customer,  already  impatient  at  the  store's  manner  of 
handling  her  request,  seemed  like  useless  red  tape. 

Finally  she  was  told  that  her  purchase  would  be  investi- 
gated. After  waiting  two  days  and  hearing  nothing,  she 
called  up  again,  only  to  be  told  of  the  store's  rule  that  made 
it  impossible  for  them  to  take  back  the  article.  Then,  to 
cap  the  climax,  the  clerk  doing*  the  talking  displayed  the 

incredible  lack  of  tact  to  suggest  that,  in  all  likelihood,  the 

138 


HANDLING    COMPLAINTS    AND    ADJUSTMENTS 

rice-boiler  had  become  damaged  in  the  housewife's  pos- 
session. 

By  this  time  the  customer  was  thoroughly  aroused.  Tak- 
ing the  rice-boiler  with  her,  she  marched  down  to  the  store. 
She  left  it  there,  with  a  piece  of  her  mind.  Now  she  trades 
with  other  stores,  even  though  they  may  have  exactly  the 
same  rules  regarding  returned  merchandise. 

The  Relations  of  Adjustments  to  Credits  and  Collections. 
There  are  several  points  of  interest  to  the  credit  man 
in  this  little  incident.  One  is  the  fact  that  such  things, 
happening  every  day,  are  allowed  only  too  frequently  to 
go  uncorrected,  to  the  untold  injury  to  the  store's  business 
and  reputation  for  service.  No  one  can  estimate  the  actual 
money  loss  every  year  to  the  stores  of  this  country  through 
the  loss  of  desirable  charge  accounts,  because  of  the  failure 
to  administer  humanly  the  detail  of  the  store  policy,  be- 
cause it  is  left  to  the  discretion  of  those  who  haven't  the 
knowledge  or  the  training  to  handle  the  task  from  the 
credit-office  point  of  view. 

It  is  never  wise  to  be  too  technical  with  a  woman  shopper, 
or  try  to  convince  her  of  the  unfailing  need  and  wisdom  of 
certain  common  regulations  of  business.  In  the  first  place,  a 
woman  shopper  will  almost  never  be  persuaded  that  a  business 
rule  is  right  just  because  some  one  says  it  is.  She  must  be 
made  to  understand  the  reasonableness  of  the  rule.  In  the 
second  place,  she  is  likely  to  be  interested  only  in  her  side 
of  the  question,  anyway,  and  so  be  hard  to  handle  in  a  way 
just  to  the  store  as  well  as  to  herself. 

The  Credit  Man's  Relation  to  Adjustments.  Every 
complaint,  no  matter  how  trivial,  has  in  it  the  germ  of  an 
excuse,  not  only  for  trading  elsewhere,  but  also  for  delaying 
or  refusing  money  due  the  store.  It  follows,  then,  that  the 
credit  man  can  well  supervise  also  the  handling  of  com- 
plaints, and  in  a  small  store  actually  handle  them  himself. 

139 


RETAIL  CREDITS  AND  COLLECTIONS 

In  a  large  store,  where  there  is  a  complete  adjustment 
department,  under  a  separate  manager,  all  complaints  of 
charge  customers  should  be  brought  to  the  notice  of  the 
credit  man,  so  that  he  may  know  at  once  how  his  credits  and 
collections  are  likely  to  be  affected  and  be  guided  accordingly. 

On  the  store's  part,  then,  the  complaints  received  are 
perhaps  its  most  direct  and  most  valuable  means  for  studying 
its  position  and  value  in  the  community.  When  it  is  remem- 
bered that  every  complaint  has  a  live  customer  at  the  other 
end  of  it,  the  store  will  accept  all  complaints,  no  matter 
how  unjust  or  how  difficult  to  handle,  as  so  many  money- 
saving  suggestions  for  improvement  in  the  store's  service. 
It  is  desirable,  therefore,  from  still  another  point  of  view, 
that  the  subject  of  adjustments  be  considered  in  connection 
with  that  of  credits  and  collections. 

What  Rights  Has  the  Customer?  With  that  broad  view 
of  the  matter  distinctly  reflected  in  the  store's  policy,  every 
retailer  will  concede  certain  rights  as  well  as  certain  responsi- 
bilities to  his  customers.  The  customer  has,  for  example, 
the  right  to  expect  from  a  first-class  store  clean,  fresh  mer- 
chandise, conveniently  displayed,  honestly  priced,  and  cour- 
teously shown. 

In  addition  to  these  fundamental  rights,  certain  customs 
and  practices  have  been  developed  to  extend  the  store's 
service.  The  custom  of  sending  goods  out  on  approval  is 
one  of  them,  established  originally  by  retailers  as  a  special 
service  in  deserving  cases,  with  the  idea  of  extending  as  much 
accommodation  as  possible.  The  custom  of  delivering  pur- 
chases for  customers  is  another  form  of  special  service  that 
is  now  demanded  almost  universally  as  a  right.  The  privilege 
also  is  being  much  curtailed  since  the  beginning  of  the  war, 
and  it  is  likely  that  many  stores  will  drop  it  or  limit  it  to 
one  delivery  a  day  in  harmony  with  the  suggestion  of  the 

Commercial  Economy  Board. 

140 


HANDLING    COMPLAINTS    AND    ADJUSTMENTS 

It  is  not  surprising,  perhaps,  that  with  the  extension  of 
the  store's  service  through  the  offering  of  these  special 
privileges  to  customers,  and  entirely  regardless  of  the  war, 
many  new  problems  have  arisen  to  be  solved,  many  abuses 
of  these  privileges  to  be  overcome.  For  instance,  there  is 
now  a  well-defined  movement  on  foot  among  public- 
spirited  people,  urging  shoppers  to  buy  only  such  goods 
as  they  need. 

Rules  for  the  Return  of  Merchandise.  As  an  example  of 
the  co-operative  effort  among  merchants  to  combat  the  evil, 
the  following  "Rules  for  the  Return  of  Merchandise"  were 
adopted  not  long  ago  by  the  St.  Louis,  Missouri,  Merchants 
Association.  This  is  entirely  in  keeping  with  the  suggestions 
of  the  Commercial  Economy  Board. 

RULE  I 

For  sanitary  and  other  reasons,  the  following  articles  cannot  be 
exchanged  or  returned: 
Bedding  and  mattresses. 
Beds,  cots,  duo-fold  beds  and  sofa  beds. 
Garments  when  altered  as  agreed. 
Shoes  which  have  been  altered,  or  on  which  the  buttons  have 

been  reset,  or  which  have  been  worn  or  damaged. 
Combs,  hair-brushes,  and  tooth-brushes. 
Hair  goods  and  hair  ornaments. 
Rubber  goods. 

Women's  neckwear  and  veilings. 
Women's  hats  made  or  trimmed  to  order. 
Remnants. 

China  and  glassware. 

All  goods  cut  from  the  piece  at  the  request  of  the  customer,  and 
Goods  made  to  order,  or  specially  ordered,  which  are  not  carried 
in  regular  stocks. 

RULE  II 

All  merchandise  will  be  considered  sold  and  not  returnable  if 
in  the  customer's  possession  longer  than  three  days.  Merchandise 
will  be  returnable  only  when  in  the  original  condition  and  boxing, 
and  accompanied  by  the  sales-check. 

141 


RETAIL  CREDITS  AND  COLLECTIONS 

RULE  III 
Christmas  merchandise  cannot  be  returned  after  December  28th. 

RULE  IV 

Wedding-gifts  may  be  returned  for  exchanges  only  within  thirty 
days  subsequent  to  the  wedding. 

RULE  V 

Lingerie  dresses  cannot  be  returned  for  credit  or  refund.  But  if 
lingerie  dresses  are  returned  in  the  original  condition  and  boxing, 
accompanied  by  the  original  sales-check,  and  within  three  days, 
they  may  be  exchanged  in  the  same  department  for  garments  of 
different  sizes  or  some  other  garments  of  a  similar  nature. 

RULE  VI 

These  rules  governing  the  return  of  merchandise  will  become 
effective  August  1st.  The  publicity  campaign  to  start  Sunday, 
July  25th.  Also  there  will  be  sent  out  on  August  1st,  with  the 
statements  for  the  month  of  July,  an  outline  of  the  rules  adopted. 

The  publicity  campaign  will  be  carried  on  through  cards  on  dis- 
play in  each  of  the  stores,  circulars  inclosed  with  every  package  of 
merchandise,  and  through  the  newspapers. 

An  appropriation  of  $1,500  for  use  by  publicity  commission  is 
authorized. 

RULE  VII 

No  millinery  is  to  be  sent  on  approval,  on  and  after  August  1st, 
except  millinery  for  mourning  wear. 

RULE  VIII 

Customers  in  the  habit  of  returning  merchandise,  and  makers 
of  unjust  claims,  are  to  be  reported  to  the  Credit  Bureau  and  the 
Executive  Committee  of  the  Credit  Bureau,  so  that  such  action 
as  they  may  recommend  in  regard  to  the  closing  of  the  account 
may  be  taken. 

Each  member  of  the  association  will  report  quarterly  the  names 
of  customers  who  during  that  period  have  returned  35  per  cent,  or 
more  of  all  goods  purchased.  Customers  in  the  habit  of  returning 
C.  O.  D.  merchandise  will  be  reported  to  the  Credit  Bureau  for 
action. 

142 


HANDLING    COMPLAINTS    AND    ADJUSTMENTS 

RULE  IX 

A  deposit  of  not  less  than  20  per  cent,  will  be  required  on  all 
C.  O.  D.  purchases  of  piece  goods,  except  telephone  and  mail 
orders.  A  deposit  of  not  less  than  20  per  cent,  will  be  required  on 
all  "will  call"  purchases,  and  also  on  furniture  and  other  mer- 
chandise held  for  future  delivery. 

A  uniform  contract  for  "will  call"  orders  will  be  used  and  will 
have  been  submitted  to  legal  authority  to  ascertain  whether  or 
not  the  deposit  paid  by  the  customer  can  be  held  by  the  store. 

RULE  X 

Uniform  non-removabie  tags  will  be  used  by  all  stores  on  ready- 
to-wear  apoarel,  millinery,  rugs,  and  so  forth,  in  order  to  prevent 
wear  or  use  preceding  return. 

RULE  XI 

Superintendents  and  general  managers  will  be  given  full  authority 
to  inforce  the  above  rules,  and  their  decisions  will  be  final. 

Unjust  Claims.  The  experience  of  every  store  will  fur- 
nish plenty  of  examples  of  claims  made  unjustly  for  credits, 
exchanges,  or  refunds.  Efforts  to  establish  reasonable  safe- 
guards against  them  are  slow  to  produce  tangible  results, 
because  too  many  women  shoppers  do  not  care  who  is  in- 
convenienced, or  who  pays  the  bills,  so  long  as  they  get  what 
they  want. 

Here  are  a  few  specific  examples  taken  from  the  experience 
of  a  store  in  Lincoln,  Nebraska.1 

Customer:   "I  would  like  to  exchange  this  ball  of  number  thirty 

cotton  for  number  fifty." 

Clerk:  "This  is  not  our  cotton,  so  I  cannot  exchange  it  for  you." 
Customer:   "I  got  this  thread  right  here  at  this  counter." 
Clerk:  "I  beg  your  pardon,  this  is  Woolworth's  cotton,  with  their 

mark  on  it.    It  came  from  the  Ten  Cent  Store." 
Customer:  "  Now  isn't  that  strange?   One  of  my  neighbors  asked 

me  to  exchange  this  for  her,  and  she  said  she  got  it  here." 

1 S.  A.  Sanderson,  vice-president,  Rudge  &  Guenzel  Co.,  Lincoln, 
Nebraska,  in  Credit  World,  March,  1917. 

143 


RETAIL  CREDITS  AND  COLLECTIONS 

A  few  days  ago  we  went  twelve  miles  into  the  country  to  in- 
vestigate the  complaint  of  a  woman  regarding  the  quality  of  some 
linoleum.  We  found  that  it  showed  marks  where  the  men  of  the 
household  had  tilted  in  their  chairs.  We  discovered,  further,  that 
this  linoleum  had  been  sold  and  put  down  five  years  ago. 

A  customer  picked  out  a  Georgette  crepe  waist  at  our  store  on 
approval.  It  was  sent  out  in  a  pasteboard  box,  neatly  packed  and 
in  perfect  condition;  it  was  returned  all  crumpled  up  and  wrapped 
in  a  newspaper,  without  any  explanation.  She  evidently  purchased 
one  from  another  store,  also,  because  the  next  day  she  came  into 
our  store  with  a  package  from  another  firm,  and  asked  to  see  a 
waist  like  the  one  she  had  sent  out  the  other  day.  The  salesperson 
very  obligingly  brought  out  the  identical  waist;  the  customer  ob- 
jected to  the  fact  that  this  waist  was  all  crumpled  up,  and  wanted 
a  fresh  one,  to  which  the  salesperson  replied  that  this  was  the  iden- 
tical waist  the  customer  had  sent  out  the  other  day,  and  in  the  same 
condition  as  when  returned  to  us. 

The  percentages  of  returns  to  cash  sales  in  our  own  store  for 
1916  are  about  double  what  they  were  for  1915,  and  the  percent- 
ages of  returns  on  charge  sales  also  show  an  alarming  increase. 
Many  of  the  big  stores  in  other  cities  report  that  about  one  out 
of  every  five  purchases  are  returned  without  reason. 

Disputed  Claims.  The  active  ill-will  of  patrons  who  are 
dissatisfied  with  goods  or  service  is  the  price  of  the  failure  to 
make  satisfactory  adjustments  of  complaint.  Even  with 
a  broad-minded  policy  of  adjustment  in  practice,  it  is  not 
easy  to  write  a  letter  or  to  conduct  an  interview  with  a  cus- 
tomer which  will  grant  the  claim  and  satisfy  the  complainant 
so  thoroughly  as  to  increase  his  good-will  toward  the  store. 
Yet  this  is  the  requirement  that  all  adjustments  must  meet, 
and  if  it  is  difficult  to  accomplish  this  in  cases  where  the 
house  policy  will  permit  a  concession  of  the  claim,  it  is  doubly 
so  in  the  cases  where  it  is  unwise  to  make  an  adjustment 
which  would  free  the  claimant  from  all  his  loss  as  he  figures  it. 

It  is  the  business,  then,  of  the  man  who  writes  adjustment 

144 


HANDLING    COMPLAINTS    AND    ADJUSTMENTS 

letters,  or  who  receives  complaints  in  person,  to  resell  the 
customers  on  his  confidence  in  the  reliability  of  the  goods 
or  the  service,  at  the  time  he  makes  the  adjustment. 

The  first  requirement  of  a  man  in  the  position  of  adjuster, 
especially  where  there  is  a  dispute  with  some  justice  on  both 
sides,  is  to  have  the  right  attitude  toward  the  addressee. 
Unless  the  customer  gets  into  a  placated  frame  of  mind  he 
will  not  agree  to  any  reasonable  adjustment.  The  adjuster 
must  get  the  proper  attitude  before  he  can  expect  the  cus- 
tomer to  get  it.  If  the  adjuster  is  angry  the  customer  is  sure 
to  be.  It  is  not  always  easy  to  maintain  an  even  temper 
toward  the  person  who  makes  accusations  and  claims,  no 
matter  how  just.  If  the  adjuster  is  going  to  do  his  best 
work,  he  cannot  afford  to  let  emotion  interfere  with  his 
judgment.  The  successful  adjuster  will  take  note  of  every 
point  in  the  claimant's  statement  that  tends  to  indicate 
definitely  what  is  the  exact  caliber  of  the  complainant  and 
what  frame  of  mind  he  is  in. 

In  general,  it  may  be  said  that  the  best  adjustment  is 
one  that  is  fairest  to  all  parties  concerned.  Few,  if  any, 
business  houses  can  afford  to  practise  absolutely  the  policy 
which  is  based  on  the  theory  that  the  customer  is  always 
right.  The  spirit  of  this  theory  is  admirable,  but  to  apply 
it  in  all  cases,  without  exception,  would  often  mean  unfair- 
ness to  the  customer  as  well  as  to  the  house. 

While  each  adjustment  must  be  handled  with  due  regard 
for  the  particular  circumstances,  there  are  a  few  fundamental 
points  that  should  be  kept  in  mind  as  affecting  all  adjust- 
ments. One  mail-order  house  prepared  a  list  of  "  Inside 
Tips  on  Adjustment  Letters."  The  following  "tips"  are 
quoted  from  it: 

Welcome  every  complaint. 
Sympathize  with  the  complainant. 
Show  willingness  to  make  right  any  wrong. 

145 


RETAIL    CREDITS    AND    COLLECTIONS 

Avoid  promises  unless  you  are  sure  you  can  keep  them. 

Get  at  the  facts  of  the  case. 

Avoid  arguments — state  facts. 

Be  courteous,  but  not  effusive. 

Cheer  up  all  the  time. 

Avoid  weak-sounding  apologies— admit  derogatory  facts  frankly 

— make  good  with  deeds  rather  than  with  words. 
Have  a  good  reason  for  each  concession. 
Never  suggest  that  you  suspect  the  customer  of  dishonesty  or 

carelessness. 

Give  the  customer  the  benefit  of  any  doubt. 
Don't  cause  the  customer  inconvenience,  especially  for  anything 

that  is  our  fault. 
Satisfy  the  customer,  if  possible,  but  be  just  as  fair  to  the  house  as 

to  the  customer.    That  is  the  only  kind  of  fairness  that  is  fair. 

Trade  Abuses  and  Credit  Work.  Many  of  the  privileges 
now  offered  to  the  customers  of  retail  stores  had  their  origin 
in  the  relations  of  retailers  with  the  wholesalers  and  jobbers 
or  manufacturers  from  whom  they  purchase. 

For  example,  the  trade  practice  of  allowing  discounts  by 
retail  stores  to  members  of  certain  professions  like  dress- 
makers, milliners,  or  professional  shoppers,  developed  on  the 
theory  that  they  in  turn  were  buying  material  for  resale  and 
that  they  would  purchase  in  larger  quantities  than  the  con- 
sumer. Since  the  war  began  many  stores  have  discontinued 
all  discounts  except  to  their  own  employees. 

In  the  same  way,  the  practice  of  allowing  the  return  of 
goods  and  cancellation  of  orders  by  patrons  of  retail  stores 
is  doubtless  a  reflection  of  the  same  practice  in  vogue  between 
retailers  and  wholesalers. 

Very  few  merchants  are  slow  to  pay  their  bills  out  of 
deliberate  meanness,  nor  does  a  merchant  become  guilty 
of  various  trade  abuses  out  of  malice.  Back  of  all  lies  the 
one  great  reason — want  of  funds.  In  the  same  way,  the 
abuse  of  privileges  granted  by  retail  stores  to  their  patrons 
is  due  to  the  same  reasons,  but  complicated  by  the  fact  that 

146 


HANDLING    COMPLAINTS    AND    ADJUSTMENTS 

the  individual  is  less  reasonable  and  more  likely  to  be  actuated 
by  false  pride,  extravagance  in  taste,  and  the  wish  to  put  up 
a  front. 

If  a  customer's  record  shows  a  growing  habit  of  making 
unjust  claims,  of  returning  goods  without  reason,  of  slow- 
ness in  making  payments,  it  is  time  for  the  credit  man  to 
take  action. 

Credit  Diplomacy.  The  responsibility  of  the  credit  office 
extends,  then,  not  merely  to  the  granting  of  credit  and  the 
collection  of  accounts,  but,  through  the  exercise  of  these 
functions,  to  active  assistance  in  the  adjustment  of  differ- 
ences, to  the  shaping  of  the  policy  of  the  store. 

Some  of  the  problems  arising  from  bad  or  unbusinesslike 
practice  on  the  part  of  customers,  and  which  directly  affect 
the  accounts,  are  the  following: 

1.  Demanding  discounts  to  which  customer  is  not  entitled. 

2.  Making  unjust  claims. 

3.  Returning  merchandise. 

4.  Cancellation  of  orders  for  goods  to  be  made  to  order. 
It  is  in  the  handling  of  such  problems  that  the  man  in 

charge  may  display  ability  of  high  character,  or,  through 
incapacity  to  grasp  the  situation  and  handle  it  successfully, 
may  become  a  mere  follower  of  routine. 

Writing  Letters  to  Bring  Settlements  of  Disputed  Ac- 
counts. Tact,  diplomacy,  firmness  of  character,  and  broad- 
mindedness  are  essential  in  handling  such  problems,  and  since 
adjustments  are  usually  made  by  correspondence,  tactful 
and  forceful  letter-writing  is  also  a  prime  requirement.  The 
writer  should  be  absolutely  convinced  of  the  justice  of  his 
contentions,  and  the  strength  of  his  position,  before  he 
undertakes  to  convince  an  erring  customer.  But  he  must 
bear  in  mind  that  it  costs  money  to  put  a  new  customer  on 
the  books  and  that  it  is  better  to  save  one  old  customer  whose 
credit  is  firmly  established  than  to  search  for  two  new  ones 
11  147 


RETAIL  CREDITS  AND  COLLECTIONS 

of  whom  nothing  is  known.  Some  stores  figure  that  it 
costs  $500  to  $1,000  to  get  a  new  charge  customer  to  the 
point  where  she  buys  regularly  and  will  profit  to  the 
store.  I  think  this  figure  is  high;  and  of  course  it  must 
always  be  a  wild  estimate,  for  there  are  so  many  factors 
to  consider. 

The  complaining  customer  always  thinks  he  has  good 
grounds  for  his  complaint — and  in  most  cases  he  has.  The 
credit  man  whose  job  is  to  collect  the  money  due  the  house, 
in  spite  of  the  customer's  reluctance  to  pay,  can  only  do 
it  by  getting  the  customer's  viewpoint  and  not  by  taking 
the  attitude  that  he  is  trying  to  "slip  one  over  on  the 
house."  The  interests  of  the  house  are  so  closely  bound 
up  with  those  of  the  customer  that  it  is  difficult  to  dis- 
tinguish between  them. 

Salesmanship  in  Adjustment  Letters.  The  adjustment 
letter  that  attempts  to  resell  to  the  complainant  his  former 
good  opinion  of  the  store,  and  thus  induce  him  to  pay  his 
account,  must  have  such  a  tone  as  to  make  the  reader  forget 
his  feeling  of  displeasure  and  to  impress  him  pleasantly  and 
positively  with  the  store's  good  intentions. 

The  letter,  to  be  successful,  must  at  least  convince  the 
customer  of  the  store's  desire  to  treat  him  squarely — that 
much  is  his  right.  When  the  store's  attitude  has  been 
clearly  stated,  then  the  letter  should  get  down  to  facts,  point 
by  point. 

The  following  letter  was  received  from  one  of  the  largest 
business  houses  in  the  country,  in  answer  to  the  complaint 
of  a  woman  who  called  attention  to  a  mistake  made  by  the 
repair  department  involving  an  electric  curling-iron. 

DEAR  MADAM: 

We  were  recently  informed  that  you  believed  the  wrong  electric 
curling-iron  had  been  sent  you. 

Kindly  call  at  our  adjusting  bureau  at  your  earliest  convenience, 

148 


HANDLING    COMPLAINTS    AND    ADJUSTMENTS 

bringing  this  letter  with  you  and  the  iron  sent  you.    We  will  then 
give  the  matter  our  prompt  attention. 

Very  truly, 

The  use  of  the  word  "believe"  was  most  unfortunate  be- 
cause, as  she  expressed  it,  "they  know  I  know."  She  was  very 
angry  at  the  airy  command  to  bring  in  the  iron  after  they 
had  made  the  mistake. 

Of  course  she  didn't  do  as  she  was  directed.  Instead,  her 
husband  wrote  the  store  exactly  what  he  thought  of  the 
whole  mess.  Numerous  apologies  followed.  A  special  wagon 
called  for  the  iron  and  brought  back  a  new  one,  at  a  cost 
many  times  that  of  the  iron  when  it  was  new. 

A  frank,  tactful  letter  would  have  saved  all  the  trouble, 
and  the  account  as  well.  For  a  woman  who  is  buying  fre- 
quently at  a  store,  for  example,  a  letter  like  this  might  have 
been  better: 

DEAR  MRS.  BLANK: 

You  may  be  sure  that  we  regret  the  mistake  made  in  handling 
the  curling-iron  you  left  with  us  to  be  repaired. 

We  handle  hundreds  of  articles  in  the  repair  department  every 
day,  and  although  a  certain  number  of  errors  are  unavoidable,  we 
try  to  keep  them  down  to  as  few  as  possible.  We  are  sorry  that  the 
consequences  of  one  such  mistake  has  fallen  upon  you,  and  we 
welcome  the  opportunity  through  your  letter  to  make  at  least  par-, 
tial  amends  by  rectifying  it  quickly. 

A  messenger  will  make  a  special  call  for  the  curling-iron  sent  you 
by  mistake,  and  as  soon  as  possible  return  the  right  one  to  you,  or 
a  new  iron. 

The  details  will  be  handled  by  the  adjusting  bureau,  where  the 
matter  is  being  referred  for  immediate  attention. 

Sincerely, 

A  common  fault  in  writing  adjustment  letters  is  that  of 
appearing  over-anxious  to  please  an  angry  complainant.  It 

is  a  question  whether  more  damage  may  not  be  done  by 

149 


RETAIL  CREDITS  AND  COLLECTIONS 

overdoing  than  by  underdoing,  as  in  the  case  of  the  letter 
already  quoted. 

The  reply  to  the  following  letter  illustrates  the  point. 
The  writer  makes  the  mistake  of  using  too  many  courteous 
phrases,  the  purpose  of  which  is  too  obvious.  The  complaint 
follows: 

GENTLEMEN: 

I  know  a  big  concern  like  yours  gets  behind  its  merchandise 
with  a  guaranty  of  satisfaction.  Therefore  I  am  returning  the  in- 
closed tie,  which  I  bought  in  your  14th  Street  Store.  I  have  worn 
it  five  or  six  times.  The  price  was  $1.00. 

This  tie  is  a  disappointment  to  me.    Please  send  me  another  one 
about  like  it,  if  you  will,  but  one  that  won't  fray  out  so  quickly. 
Yours  very  truly, 

The  tie  was  badly  worn  at  the  edges,  and,  although  there 
was  not  much  question  that  the  material  was  defective,  it  was 
possible  that  the  edges  might  have  been  scorched  in  pressing. 

Here  is  the  letter  intended  to  adjust  the  complaint: 

DEAR  SIR: 

Please  accept  our  thanks  for  your  very  kind  and  courteous  favor 
of  the  30th,  directing  our  attention  to  the  unsatisfactory  service 
given  you  by  a  tie  purchased  at  one  of  our  stores. 

Rest  assured  that  we  are  prepared  to  stand  back  of  our  mer- 
chandise under  any  and  all  circumstances.  Furthermore,  our  one 
great  desire  is  to  have  every  customer  thoroughly  satisfied. 

We  take  pleasure  in  inclosing  herewith  a  new  tie  to  replace  the 
one  you  returned,  and  trust  that  it  will  give  you  a  great  deal  more 
satisfactory  service  than  the  one  you  returned.  If  it  should  not,  do 
not  hesitate  to  return  this  one  too. 

Yours  very  truly, 

In  spite  of  the  fact  that  the  adjustment  of  the  complaint 
was  entirely  satisfactory,  this  letter  distinctly  impressed  the 

addressee  with  a  feeling  that  the  writer  did  not  mean  all 

150 


HANDLING    COMPLAINTS    AND    ADJUSTMENTS 

he  said.  He  seemed  too  anxious  to  please.  Furthermore, 
the  writer  of  the  letter  failed  to  create  confidence  in  the  new 
tie.  Here  is  the  letter  1  as  it  might  be  rewritten  with  the 
object  of  creating  a  stronger  feeling  of  confidence: 

DEAR  MR.  : 

Thank  you  for  returning  to  us  the  unsatisfactory  tie.  The  purest 
silk  will  sometimes  fray  out  easily;  or  it  may  be  that  this  tie  was 
scorched  when  it  was  pressed.  We  regret  that  you  happened  to 
get  this  particular  tie,  but  we  are  glad  you  took  the  trouble  to 
send  it  back  and  give  us  this  opportunity  to  send  to  you  another 
which  we  trust  will  give  you  entire  satisfaction. 

Please  remember  that  this  company  stands  back  of  its  mer- 
chandise with  an  unqualified  guaranty  of  entire  satisfaction,  in- 
cluding ties  made  of  pure  silk. 

Yours  very  truly, 

The  writer  of  this  letter  resells  to  the  customer  his  confi- 
dence in  this  particular  tie,  and  yet  leaves  a  loophole  in 
case  this  tie  also  fails  to  give  satisfaction. 

1  Business  Correspondence,  vol.  xii,  1917  edition.  Alexander  Ham- 
ilton Institute,  New  York. 


Part    IV 
COLLECTION   METHODS 


PLANNING  THE   COLLECTION  SYSTEM 

How  a  Debtor's  Mind  Works.  Those  who  remember 
Dick  Swiveller,  the  ne'er-do-well  in  Dickens's  Pickwick 
Papers,  will  recall  his  reply  to  Fred  Trent's  sneering  question 
if  his  memo,  book  of  London  tradesmen  was  a  reminder  to 
pay  them  what  he  owed. 

"Not  exactly,  Fred,"  replied  Dick.  "I  enter  in  this  little 
book  the  names  of  the  streets  that  I  can't  go  down  while 
the  shops  are  open.  This  dinner  to-day  closes  Longacre. 
I  bought  a  pair  of  shoes  in  Great  Green  Street  last  week, 
and  made  that  'no  thoroughfare7  too.  There's  only  one 
avenue  to  the  Strand  left  open  to  me  now,  and  I  shall 
have  to  stop  up  that  to-night,  with  a  pair  of  gloves.  The 
roads  are  closing  so  fast  in  every  direction  that  in  about  a 
month's  tinue,  unless  my  aunt  sends  me  a  remittance,  I  shall 
have  to  go  three  or  four  miles  out  of  town  to  get  over  the 
way." 

Dick's  reply  gives  a  glimpse  of  the  workings  of  the  debtor's 
mind.  The  collection  plan  that  will  bring  best  results  from 
the  Swivellers  among  retail  buyers  is  the  one  that  remembers 
that  most  men  want  to  pay  their  debts.  It  is  the  plan  that 
sets  the  pace.  When  an  account  lags,  it  must  be  put  back 
into  its  regular  pace.  When  a  debtor  balks,  the  system  must 
make  a  test  of  him.  It  must  find  the  trouble,  then  get  a 

settlement.    Jf  the  fault  is  the  store's,  it  must  ke  made  right, 

155 


RETAIL    CREDITS    AND     COLLECTIONS 

If  the  debtor  only  is  at  fault,  the  system  must  find  out 
whether  he  is  a  cheat  or  simply  a  blunderer.  If  it  is  the 
customer's  mistake,  quick  action  will  get  the  money  and 
retain  his  friendship,  provided  it  helps  him  pay.  When  the 
debtor  cheats,  the  system  must  use  the  whip.  He  must  be 
trained  to  come  to  time.  The  collection  plan  that  is  right 
must  know  its  own  limitations — when  and  where  the  final 
steps  to  force  collection  are  worth  while.  It  must  know  the 
road,  then  set  the  pace  and  train  the  debtor  to  keep  it. 

The  man  in  charge  of  collections  may  be,  and  frequently 
is,  one  and  the  same  with  the  credit  man.  Whoever  he  is, 
he  is  expected  to  produce  definite  daily  results  in  hard,  cold 
cash,  which  are  necessary  if  the  business  is  to  live.  Careful 
and  effective  collection  procedure  begins  with  the  opening 
of  the  account.  The  record  made  at  that  time,  of  informa- 
tion regarding  the  customer,  is  the  basis  on  which  his  treat- 
ment from  a  collection  standpoint  will  be  founded. 

Making  Clear  the  Store's  Policy.  Having  recorded  the 
exact  information  needed  to  catalogue  accurately  each 
charge  customer,  every  store  proprietor  must  determine 
upon  a  definite  policy  to  be  followed  in  the  collection  of  its 
accounts.  This  policy  must  be  made  to  fit  the  nature  of  the 
business,  the  class  of  the  store's  patrons,  and  the  conditions 
existing  in  the  community  generally. 

Among  the  important  things  to  be  impressed  upon  the 
customer,  and  the  thing  that  the  store's  collection  plan 
must  continue  to  impress,  is  the  terms  on  which  the  patron's 
trade  is  to  be  accepted.  The  customer  must  understand 
definitely  what  his  obligation  to  the  store  is.  This  is  best 
accomplished  by  the  explanation  given  verbally  at  the  time 
the  account  is  applied  for,  and  later  confirmed  by  letter  to 
the  applicant  when  the  account  is  finally  accepted. 

The  store's  salespeople  should  know  enough  of  the  credit 

and  collection  requirements  of  the  store  to  enable  them  to 

156 


PLANNING  THE  COLLECTION   SYSTEM 

answer  intelligently  questions  relating  to  accounts  which 
are  quite  naturally  put  to  them  in  the  course  of  direct  contact 
with  customers. 

The  Policy  on  Following  Up  Accounts.  Almost  all  city 
retail  stores  consider  accounts  due  on  the  10th  of  the  month 
following  the  date  of  purchase.  Not  all  stores  fix  upon  the 
same  length  of  time,  however,  which  may  elapse  before 
calling  the  account  more  directly  to  the  delinquent  customer's 
attention.  One  credit  man  files  each  day  the  list  of  accounts 
opened,  "tickled"  ahead  forty-five  days.  When  that  date 
comes  up  these  accounts  are  checked  against  the  ledgers. 
Any  of  those  which  have  not  been  paid  are  referred  back  to 
the  credit  man  for  action.  Under  ordinary  circumstances 
this  is  made  the  starting-point  of  the  store's  collection  policy. 

Most  concerns  make  some  effort  to  classify  accounts  into 
groups  according  to  the  condition  of  their  payments.  Each 
group  then  may  be  given  different  treatment,  according  to 
the  circumstances.  The  collection  man  of  one  concern  has 
devised  a  system  which  automatically  brings  to  his  personal 
attention  all  accounts  which  at  any  time  reach  one  hundred 
days  past  due.  A  special  card  is  used  on  which  each  account 
in  this  class  is  carried,  so  that  they  may  be  readily  identified. 

In  arranging  the  details  of  the  store's  collection  system 
questions  like  these,  "What  are  to  be  considered  as  the 
usual  terms?"  "How  closely  are  collections  to  be  made?" 
"What  leniency  shall  be  shown  to  delinquents  as  a  class?" 
suggest  matters  to  be  determined  only  after  the  most  careful 
consideration. 

Testing  the  Policies.  The  system,  once  installed,  should 
not  be  condemned  too  hastily,  even  if  it  does  not  seem  at 
first  to  come  up  to  expectations.  Give  it  time  for  a  thorough 
try-out.  Improvements  can  be  introduced  as  defects  de- 
velop, or  as  new  and  unexpected  conditions  arise.  The 
object  should  be  to  perfect  the  existing  plan  rather  than  to 

157 


RETAIL    CREDITS    AND    COLLECTIONS 

substitute  some  other  in  its  place.  Changes  must  be  made 
to  remedy  defects  and  to  keep  pace  with  growth  in  business. 
The  history  of  every  successful  collection  plan  is  a  chronicle 
of  constant  development  and  adjustment. 

The  test  of  a  collection  system  is  one  that  permits  no 
haphazard  action,  that  provides  definite  procedure  for  all 
known  contingencies,  that  insures  promptness  of  attention, 
that  insures  proper  attention  at  the  right  time. 

The  Monthly  Statement.  It  is  the  almost  universal  cus- 
tom to  send  a  statement  to  the  customer  on  the  1st  of  the 
month  following  the  purchase  of  goods,  and  to  list  on  this 
statement  the  items  purchased  during  the  month.  Because 
they  are  customary,  these  statements  are  not  looked  upon  as 
"duns,"  but  as  a  mere  reminder  or  memorandum  to  the  pur- 
chaser. They  are  a  convenience  to  him  because  they  record 
the  purchases  as  they  appear  on  the  store's  record.  Then, 
if  there  are  any  errors  or  misunderstandings,  on  either  side, 
as  to  the  goods  bought  or  the  prices  charged,  such  differences 
are  discovered  and  can  be  adjusted.  The  matter  being 
fresh  in  the  minds  of  all  those  concerned,  this  can  usually 
be  done  without  arousing  any  ill-will  on  the  part  of  the  cus- 
tomer— something  very  desirable  in  these  days  of  keen  com- 
petition. 

As  a  suggestion  for  war-time  saving  considerable  dis- 
cussion has  recently  been  given  to  the  plan  of  omitting  the 
items  on  monthly  statements,  urging  customers  to  keep 
their  sales  slips  for  checking  purposes.  The  consensus  of 
opinion  at  the  convention  of  credit  men,  where  the  point 
was  brought  up,  was  that  it  would  be  too  radical  a  change 
to  be  readily  effected,  however. 

It  is  a  frequent  practice,  and  one  to  be  commended  in 
certain  lines  of  business,  to  include  with  the  statement  a 
letter  or  printed  folder  calling  attention  to  special  sales,  or 

certain  lines  in  which  the  customer  may  be  particularly  in- 

158 


PLANNING  THE  COLLECTION  SYSTEM 

terested.  This  plan  not  only  offers  a  most  direct  and  effec- 
tive means  of  advertising  to  a  preferred  list  of  customers, 
but  goes  far  to  give  the  impression  that  the  store's  interest 
in  the  customer  does  not  end  when  it  gets  the  customer's 
money — that  it  desires  and  appreciates  a  continuation  of 
patronage. 

The  First  Reminder.  After  the  first  statement  suggest- 
ing a  payment  due  or  expected  within  a  reasonable  number 
of  days,  stores  generally  do  not  send  out  another  statement 
until  the  1st  of  the  following  month  and  allow  the  customer 
until  the  10th  before  writing  or  sending  a  collector.  A 
large  number  of  city  stores  close  an  account  if  not  paid  by 
the  10th  of  the  following  month  (for  instance,  if  the  account 
of  June  1st  is  not  paid  by  July  10th),  re-opening  the  ac- 
count later  if  payment  is  made  in  reasonable  time. 

The  customer's  character  and  standing,  and  the  particular 
line  of  trade,  will  determine  the  method  by  which  the  ac- 
count is  handled  from  this  point  on.  Especial  consideration 
should  be  given  to  these  early  steps  of  the  collection  plan, 
so  that  the  customer's  good-will  may  be  kept,  and  at  the 
same  time  so  that  settlement  may  be  secured. 

The  Collection  Follow-up.  Many  stores  use  for  the  sub- 
sequent follow-up  of  accounts  a  regular  series  of  form  letters. 
Although  they  are  not  necessarily  multigraphed,  these  letters 
can  be  used  most  effectively  only  when  delinquent  accounts 
are  carried  on  collection  cards.  Such  cards  are  merely 
marked  with  the  name  and  address  and  ledger  folio  of  cus- 
tomer. They  have  the  months  of  the  year  printed  on  them, 
with  a  space  after  each  month,  and  the  bookkeeper,  in- 
stead of  drawing  off  a  delinquent  list  each  month,  enters 
the  arrears  on  these  cards.  The  cards  are  kept  in  a  perma- 
nent file  and  each  month  the  bookkeepers  go  through  them, 
making  out  cards  for  new  delinquents,  and  change  the 

balances  on  the  old.    On  the  back  of  these  cards  may  be  en- 

159 


RETAIL    CREDITS    AND    COLLECTIONS 

tered  the  dates  of  letters  written,  promises  received,  etc. 
The  face  may  contain  information  such  as  customer's  oc- 
cupation, when  account  was  opened,  highest  credit  limit, 
his  manner  of  payment  or  not  paying,  so  that  the  collection 
correspondent  has  before  him  a  history  of  the  account  and 
its  exact  status  at  all  times. 

A  diary  kept  in  connection  with  this  system  is  used  effec- 
tively. On  the  margin  of  the  card  a  space  is  left  for  dates, 
and  if  the  customer  is  written  to  on  the  10th  of  the  month, 
and  it  is  desired  that  his  card  be  brought  to  attention  again 
on  the  20th,  then  this  latter  date  is  entered  on  the  margin, 
the  cards  handed  to  an  assistant  to  " tickle"  them,  and  the 
matter  can,  for  the  time  being,  be  dismissed  from  the  mind. 

Should  the  account  be  handed  later  to  an  attorney  for 
attention,  this  notation  is  made  on  the  card.  It  can  then  be 
"tickled"  and  followed  up  systematically  as  before,  and  the 
attorney  is  far  more  likely  to  make  persistent  effort  on  those 
accounts  which  he  knows  are  being  watched  regularly  by 
the  owner. 

Segregating  Delinquent  Accounts.  In  a  paper  read  before 
the  1916  convention  of  Retail  Credit  Men's  National  Asso- 
ciation, Mr.  A.  Allina,  based  on  ten  years'  experience  with 
several  St.  Louis  specialty-shops,  outlined  his  collection 
procedure  as  follows: 

The  first  and  most  necessary  thing  to  do  is  to  line  up  the  delin- 
quent or  past-due  accounts  and  segregate  them  into  separate 
ledgers,  collection  cards,  or  various  other  good  systems  in  use. 

We  divide  our  accounts  into  four  classifications.  No.  1  consists 
of  the  current  accounts,  comprising  purchases  for  the  past  month 
and  the  month  previous.  No.  2  we  classify  as  delinquent,  and  con- 
sists of  purchases  ninety  days  to  four  months  old.  We  pull  these 
accounts  out  of  the  current  binders  and  carry  them  in  two  separate 
binders,  which  are  indexed.  No.  3  are  classed  very  delinquent, 
and  consist  of  accounts  over  four  months  old.  This  class  is  also 
separated  into  two  separate  binders,  indexed.  No.  4.  In  this  class 

160 


PLANNING  THE   COLLECTION   SYSTEM 

we  throw  all  doubtful  and  bad  accounts,  and  from  this  we  select, 
once  a  year,  accounts  which  are  charged  off  to  profit  and  loss.  How- 
ever, we  do  not  eliminate  them  from  our  collection  follow-up,  but 
carry  them  along  in  this  binder  indefinitely. 

After  classifying  these  accounts  according  to  the  age  of  the  ac- 
counts, then  go  ahead  and  use  various  forms  of  letters,  collector's 
calls,  and,  in  extreme  cases,  have  the  collection  attorney  or  agency 
handle  them. 

The  next  important  step  is  to  have  a  consistent  and  as  nearly 
perfect  follow-up.  This  can  be  devised  very  easily  with  the  nu- 
merous filing  devices  on  the  market.  Persistent  following  up  at 
regular  intervals  of  five  to  ten  days  will  bring  excellent  results 
in  ninety-nine  out  of  every  one  hundred  accounts.  The  debtor 
receiving  several  communications  and  collector's  calls  will  realize 
that  the  obligation  must  have  immediate  attention. 

As  stated  before,  we  consider  an  account  delinquent  ninety  days 
after  the  date  of  purchase,  and  not  from  the  date  of  the  first  bill. 
To  illustrate,  an  account  covering  purchases  made  in  May  is  de- 
linquent on  the  first  day  of  August.  We  send  out  form  "A"  letter 
right  after  the  bills,  and  statements  are  mailed  on  the  last  day  of 
each  month.  We  put  a  follow-up  card  into  a  dated  index  file  (on 
3x5  cards)  about  ten  days  ahead.  Then,  if  the  account  is  not  paid 
we  send  form  "B."  The  follow-up  card  is  put  ahead  about  ten  days 
again.  We  also  have  our  collector  call  between  the  time  of  the 
two  letters,  and  he  also  follows  up  the  account  if  results  are  not 
obtained  at  his  first  call.  This  method  is  used  until  all  four  form 
letters  are  used,  unless  the  account  develops  into  such  shape  that 
we  have  to  use  some  other  strenuous  means  of  collection. 

We  also  report  an  account  that  does  not,  pay  up  promptly  to 
our  credit  bureau,  thereby  warning  other  stores.  We  also  use 
several  forms  of  letters  from  our  bureau,  from  which  we  obtain  ex- 
cellent results.  We  are  gradually  letting  the  buying  public  know 
that  we  are  associated  and  that  credit  will  be  declined  at  other 
stores  if  accounts  are  not  paid  up  promptly. 

After  the  120-day  period  we  classify  an  account  as  very  delin- 
quent and  we  go  after  the  money.  Our  sole  aim  is  to  get  it.  The 
biggest  percentage  of  these  accounts  we  are  forced  to  close  per- 
manently and  therefore  must  get  the  money  in. 

We  have  had  good  results  within  the  past  year  with  our  collection 
attorney  connected  with  the  credit  bureau,  and  at  a  nominal  cost. 

161 


RETAIL  CREDITS  AND  COLLECTIONS 

We  have  also  obtained  excellent  results  in  numbers  of  cases  where 
all  stores  interested  have  co-operated  jointly  in  collecting  bad  ac- 
counts. We  sued  several  jointly,  thereby  reducing  the  expense 
involved  to  a  small  figure  for  each  store,  by  pro-rating  the  costs. 

Psychology  of  the  Follow-up.  The  basis  of  every  collec- 
tion system  is  some  definite  plan  for  constantly  reminding 
delinquents  of  the  debt — the  repeated  suggestion  that  pay- 
ment is  expected  and  must  be  made.  Suggestion  offers  the 
most  effective  means  of  stimulation  to  action.  The  con- 
stant repetition  of  an  idea  is  in  itself  often  sufficient  to  oc- 
casion belief  or  conviction,  and  hence  action. 

The  debtor  who  has  been  forgotten  by  his  creditor,  or 
who,  for  any  reason,  has  not  received  notice  of  his  indebted- 
ness, very  naturally  forgets  the  debt  himself.  Upon  being 
asked  to  pay,  without  warning,  his  mental  attitude  is  one 
of  surprise.  He  feels  an  impulse  to  deny  the  debt.  Having 
denied  it,  he  naturally  refuses  to  pay.  In  a  case  like  the 
one  mentioned,  it  is  necessary  to  suggest  to  the  debtor 
that  he  owes  the  money,  that  it  is  logical  for  suggestion  to 
become  a  conviction,  and  spur  him  to  pay.  In  the  case  of 
a  forgotten  obligation,  suggestion  is  ah  easy  basis  for  opera- 
tion. The  object  is  to  occasion  in  the  debtor's  mind  a  gradual 
remembrance  of  the  debt,  and  ultimately  a  conviction  of 
his  duty  to  pay.  In  almost  every  case  where  the  debtor 
denies  the  obligation  he  does  so  from  force  of  habit,  and, 
having  denied  it,  the  constant  suggestion  that  he  still  owes 
the  amount  must  be  depended  upon  sooner  or  later  to 
bring  him  to  the  belief  that  the  bill  must  be  paid. 

Get  the  Reason  for  Delinquency.  Having  denied  his 
debt,  the  debtor  will,  with  his  gradual  yielding  to  sug- 
gestion, seek  a  valid  excuse  to  qualify  his  original  denial. 
The  best  plan,  therefore,  in  presenting  a  forgotten  or 
neglected  bill,  is  to  go  on  the  assumption  that  it  will  be 

denied.      It  is  proper  then  to  request  the  debtor  to  give 

162 


PLANNING  THE   COLLECTION   SYSTEM 

you  a  reason  why  the  bill  should  not  be  paid.  This  allows 
him  to  make  the  most  natural  response  in  the  world,  which 
is,  that  he  does  not  owe  it.  Then,  on  asking  for  reasons, 
he  qualifies  his  denial,  making  subsequent  recovery  much 
easier  by  fully  answering  his  objections. 

Constant  suggestion  of  even  an  obnoxious  idea  may, 
sooner  or  later,  occasion  in  the  mind  of  any  man  one  or  two 
reactions.  First,  some  doubt  as  to  the  validity  of  his  own 
objections,  or,  second,  the  firm  belief  in  the  truth  of  the 
suggestion.  That  is  why  dunning  wears  down  Objection 
after  objection.  The  debtor  cannot  maintain  an  attitude 
of  absolute  indifference  in  the  face  of  repeated  suggestions. 

In  the  case  of  an  honest  obligation,  he  has  either  to 
"pay  or  fight."  The  longer  the  suggestion  is  presented  to 
him,  the  less  marked  his  belligerent  attitude  and  the  more 
likely  the  conviction  of  his  error  will  become. 

In  making  the  first  demand  for  payment  a  loophole  must 
be  left  the  debtor  through  which  he  can  qualify  his  denial  of 
the  debt.  Eventually,  then,  he  may  back  down  and  pay 
without  any  appearance  of  belittling  his  self-respect.  The 
moment  will  come  when  some  newer  creditor  will  cease  to 
remind  the  debtor  of  a  more  recent  bill  he  owes.  The 
store's  insistence,  constant  and  forceful,  on  the  payment  of 
an  older  debt  will  induce  the  delinquent  suddenly  to  pay 
and  "to  have  done  with  it." 

When  Debtor  Calls  at  Store.  If  the  debtor  can  be  in- 
duced to  call  at  the  store  in  reference  to  his  past-due  account, 
the  collection  man  has  him  on  his  own  ground,  and  should, 
in  most  cases,  be  able  to  get  some  definite  and  satisfactory 
adjustment. 

In  planning  to  bring  about  such  an  interview  with  a  de- 
linquent debtor,  the  collection  man  must  keep  firmly  in  mind 
the  fact  that  the  money  is  due,  that  the  debtor  is  unjustly 
holding  back  from  the  payment  of  his  account,  and  so  must 
12  163 


RETAIL    CREDITS    AND    COLLECTIONS 

not  be  allowed  to  take  on  an  injured  air.  The  collection 
man  should  take  full  advantage  of  his  surroundings.  In  the 
course  of  such  an  interview,  the  debtor  is  almost  sure  to 
begin  with  a  hard-luck  story,  which  may  or  may  not  be 
true.  In  either  case,  the  collection  man  must  show  his 
interest  in  it.  Let  the  debtor  feel  that  he  has  a  sympathetic 
listener,  and  his  attitude  will  be  friendly.  This  will  fre- 
quently lead  the  debtor  to  tell  more  than  he  had  originally 
intended,  and  will  thus  give  a  better  idea  of  his  actual  con- 
dition than  could  possibly  be  obtained  in  any  other  way. 
It  is  good  policy  to  offer  no  compromise  or  adjustment  at  an 
interview  of  this  kind.  Take  it  for  granted  that  the  debtor 
will  pay  the  full  amount.  The  moral  effect  upon  him  will 
be  a  feeling  that  the  entire  amount  is  expected,  and  fre- 
quently will  bring  a  voluntary  suggestion  of  a  payment  of 
part  of  the  amount  due,  with  definite  assurances  of  further 
payments  later.  Having  stated  definitely  just  what  he  can 
do,  and  when,  the  debtor's  offer  will  be  possible  of  acceptance 
with  a  much  better  chance  of  fulfilment  than  if  the  offer 
had  come  from  the  collection  man  himself. 

Accepting  Small  Payments  on  Account.  In  the  case  of 
wage-earners  it  may  be  wise  to  accept  small  weekly  or 
monthly  payments  on  account.  The  exact  amount  to  be 
paid  and  the  exact  date  on  which  it  is  to  be  paid  should  be 
clearly  understood.  Once  an  agreement  of  this  kind  is 
reached,  the  debtor  must  be  made  to  feel  that  it  is  a  real 
agreement  and  that  the  store  will  not  only  expect  him  to 
live  up  to  it,  but  that  it  has  implicit  confidence  that  he  will 
do  so. 

The  Personal  Collector.  Sometimes  it  is  well  worth 
while  for  the  store's  collection  man  to  go  personally  to 
interview  his  debtors.  It  has  been  found  by  some  retailers 
that  it  does  not  pay  to  rely  too  much  on  the  postage  stamp 

to  bring  in  slow  accounts. 

164 


PLANNING  THE  COLLECTION   SYSTEM 

Another  merchant  divides  his  accounts  on  the  1st  of  the 
month  into  two  groups.  The  good-pay  group  he  mails  a 
statement  to,  and  sends  a  boy  on  a  bicycle  to  collect  from 
the  other  slow-pay  group. 

One  retailer,  who  tells  of  his  success  in  following  this 
plan,  goes  to  see  his  worst  delinquents  each  month.  He 
takes  an  itemized  statement  to  prevent  dispute,  thus  an- 
ticipating any  pleas  for  delay  until  the  account  can  be  veri- 
fied. He  says  that  when  he  looks  a  man  straight  in  the  eye, 
and  talks  with  him,  he  is  in  a  position  to  get  better  results. 
In  the  first  place,  he  always  secures  an  admission  that  the 
account  is  correct;  next,  if  the  debtor  intends  to  pay  it; 
then  he  explains  that,  the  money  being  past  due,  he  has 
counted  on  receiving  it,  and  in  nearly  all  cases  he  succeeds 
in  getting  a  note  or  at  least  a  definite  promise  of  payment 
— one  that  he  can  depend  upon.  When  such  a  promise 
falls  due,  he  follows  it  with  another  call.  A  later  chapter 
(Chapter  XII)  is  devoted  to  this  subject  of  collections  by 
personal  call. 

Keeping  in  Touch  With  Debtors.  A  collection  manager 
will  find  it  a  distinct  advantage  to  place  his  desk  in  close 
proximity  to  the  cashier's  window,  so  that  he  can  see  cus- 
tomers who  call  to  make  payments,  or  for  other  purposes, 
and  talk  to  them  when  it  may  be  necessary  to  do  so.  If 
customers  who  call  do  not  pay  according  to  agreement,  the 
cashier  can  acquaint  him  of  the  fact  at  that  time,  and  he 
can  take  the  matter  up  at  once  with  the  customer. 

The  importance  of  keeping  close  tabs  on  all  movements 
of  customers  from  one  address  to  another  is  particularly  im- 
portant in  relation  to  the  collection  accounts.  Much  valu- 
able time  is  lost  tracing  debtors  who  have  moved,  often 
without  any  intention  of  evading  payments.  The  plan  of 
stamping  all  receipts,  letters,  and  other  communications 

sent  to  customers,  cautioning  them  against  the  loss  of  time 

165 


RETAIL  CREDITS  AND  COLLECTIONS 

and  confusion  due  to  moving  without  notice  of  the  new  ad- 
dress, has  brought  good  results. 

A  systematic  plan  for  reports  to  be  submitted  by  the  store's 
delivery  men  on  customers'  movements  offers  another  useful 
check  on  possible  delinquents. 


XI 


COLLECTION   CORRESPONDENCE 

Putting  Salesmanship  into  Collection  Letters.  Have  you 
ever  followed  one  of  your  collection  letters  in  your  mind's 
eye,  letting  your  imagination  picture  its  reading  in  the  debt- 
or's house  or  office?  If  your  letter  is  commonplace,  routine, 
lacking  in  character,  it  makes  no  impression.  He  tosses  it 
into  a  drawer  to  await  the  day  when  the  more  urgent  bills 
are  pulled  out  and  paid.  If  your  letter  is  suddenly  sharp 
or  harsh  in  tone,  the  debtor  thinks:  "What's  he  going  to  do 
next?  I'll  find  out  just  how  far  this  chap  means  to  go." 

The  collection  correspondent  replaces  the  salesman  and 
the  proprietor  in  representing  the  house  to  the  delinquent 
customer  after  the  sale  is  made.  As  the  house  representative 
he  must  try  to  secure  the  money  due,  but  at  the  same  time 
keep  the  debtor's  good-will.  Just  as  the  salesperson  was 
able  to  interest  the  customer,  secure  his  attention,  create 
desire  to  the  point  of  completing  the  sale,  so  the  collection 
letter  must  compel  attention  by  awakening  curiosity  or 
appealing  to  reason  and  justice.  Second,  it  must  arouse  in- 
terest through  timely,  intimate,  newsy  style.  Third,  it 
should  ask  for  the  money  due  in  a  way  that  will  show  the 
debtor's  advantage  to  pay. 

Good  collectors  put  salesmanship  into  their  letters,  think- 
ing not  only  of  keeping  bad  accounts  from  rising  above  the 

established  allowance,  but  also  of  increasing  the  volume  of 

167 


RETAIL  CREDITS  AND  COLLECTIONS 

business  the  house  is  doing.  They  look  to  the  future  as 
well  as  to  the  past.  When  an  account  lags  they  find  out 
what  is  the  trouble  and  get  a  settlement.  If  it  is  the  mistake 
of  the  house,  they  make  it  right.  If  the  debtor  only  is  at 
fault,  they  find  out  whether  his  intention  was  to  cheat,  or 
if  he  has  simply  blundered.  When  a  debtor  blunders  they 
make  it  easier  for  him  to  pay.  In  that  way  they  can  get 
his  money  and  his  friendship  by  quick  action.  They  remem- 
ber that  most  men  want  to  pay,  and  they  do  not  consider 
any  man  dishonest  until  he  has  proved  himself  so.  The 
debtor  who  has  been  hardened  and  aggravated  by  the  or- 
dinary, "Give  me  my  money,"  will  have  a  pleasant  surprise 
if  he  is  first  shown  a  personal  understanding  of  his  case. 
A  collector's  cordial  willingness  to  be  reasonable  will  get 
him  the  money,  while  the  man  who  flies  to  early  threats 
must  wait. 

Attitude  Toward  the  Customer.  Most  collection  letters 
would  be  unnecessary  if  the  writer  knew  exactly  where  the 
debtor  stood  on  his  account,  or  if  the  debtor  knew  how  far 
the  collector's  attitude  was  final  and  had  understood  the 
terms  of  payment  so  that  he  could  plan  ahead  to  meet  the 
obligation  if  necessary.  When  there  is  a  really  mutual 
understanding  between  the  debtor  and  the  collector  there 
ceases  to  be  a  collection  problem. 

The  collector's  job  is  to  build  up  this  understanding  as 
quickly,  permanently,  and  definitely  as  he  can.  If  he  is 
obliged  to  depend  upon  the  letters  he  writes  to  help  him  to 
do  it,  the  collector  must  learn,  sooner  or  later,  how  to  put 
himself  in  the  debtor's  place  and  how  to  say  the  things  in 
his  letter  that  will  interest,  then  convince,  and  finally  im- 
pel his  reader  to  favorable  action — the  making  of  the  pay- 
ment. 

Collection  letters,  singly  or  when  used  in  a  series,  should 

be  planned  to  do  just  two  things.    First,  show  the  collector 

168 


COLLECTION    CORRESPONDENCE 

as  quickly  as  possible  where  the  debtor  stands.  Second,  to 
impress  the  debtor  with  the  collector's  firm,  unhesitating 
program  in  dealing  with  accounts  justly  due. 

To  accomplish  this  two-fold  purpose  then,  the  series  must 
first  establish  the  terms  of  accepted  payments  beyond  the 
chance  of  a  misunderstanding.  Next,  they  must  keep  these 
terms  in  sight  constantly,  making  the  debtor  remember 
that  they  stand.  They  should  make  a  firm,  definite,  con- 
servative request,  which  is  fair  and  which  carries  convic- 
tion. The  whole  series  should  grade  up  evenly  in  tone,  as 
if  there  never  had  been  or  never  would  be  a  change  in  the 
definite  policy  back  of  them.  The  collector  correspondent 
should  keep  away  from  the  letter  which  has  no  personal 
touch.  Even  better  than  the  series  of  dignified  letters  which 
studiously  avoid  throwing  obstacles  in  the  way  of  payment 
is  the  letter  with  the  personal  touch,  which  shows  an  ap- 
preciation of  the  reader's  ambition,  makes  him  feel  favorably 
disposed  toward  the  writer,  appeals  to  his  sportsmanship, 
coaxes  him  with  fear  of  embarrassment.  Form  letters  ought 
to  be  revised  often  enough  so  that  whatever  personal  touch 
goes  into  them  may  not  lose  its  effect  by  repetition  to  the 
same  individual.  As  soon  as  the  correspondent  has  developed 
the  debtor's  position — that  is,  definitely  catalogued  him — 
he  must  get  entirely  on  a  personal  basis,  making  the  appeal 
which  it  has  been  seen  will  bring  the  money  due. 

Next  to  a  remittance,  the  best  result  a  letter  can  bring 
is  a  definite  date  for  a  payment  or  a  definite  commitment 
from  the  debtor.  The  man  who  answers  locates  himself. 
He  shows  that  he  is  open  to  reason,  explains  his  situation, 
recognizes  his  responsibility. 

Mistake  of  Being  Too  Diplomatic.  Because  credit  and 
collection  correspondents  so  often  have  to  deal  with  delicate 
situations,  it  is  natural  that  they  should  frequently  carry 

diplomacy  too  far.     The  letters  that  are  obviously  diplo- 

169 


RETAIL  CREDITS  AND  COLLECTIONS 

matic  are  least  effective.  Sometimes  a  letter  is  best  when 
it  calls  a  spade  a  spade  and  apparently  makes  no  effort  to 
be  diplomatic.  In  such  a  case  the  reader  is  usually  impressed 
with  the  sincerity  and  honesty  of  the  writer.  Those  quali- 
ties command  respect.  Here  is  an  example  of  a  letter  that 
does  not  arouse  in  the  reader  any  desire  to  pay,  rather 
causing  his  resistance.  Its  chief  fault  is  its  apparent  eager- 
ness to  avoid  giving  offense: l 

DEAR  SIR: 

May  I  call  your  attention  to  the  inclosed  statement  of  a  small 
balance  of  $40,  due  on  your  account  since  April  1st.    Your  delay 
is  no  doubt  due  to  an  oversight,  and  we  shall  appreciate  it  very 
much  if  you  will  favor  us  with  a  remittance  by  return  mail. 
Yours  very  truly, 

A  successful  rewording  of  practically  the  same  letter  as 
follows  was  used  with  considerable  success  by  an  insurance 
man  who  was  collecting  a  small  account: 

DEAR  SIR: 

Our  records  of  your  account  show  a  balance  of  $40  due  since 
April  1.  According  to  the  agreement,  this  amount  was  to  be  paid 
on  the  1st  of  this  month.  Just  put  the  inclosed  statement,  with 
your  remittance,  in  the  inclosed  envelope  and  let  Uncle  Sam  do 
the  rest. 

Yours  very  truly, 

It  has  the  direct,  frank,  honest  statement  of  facts  that 
gives  the  distinct  feeling  of  confidence  that  the  writer  is 
right.  These  are  the  characteristics  of  a  successful  sales 
letter. 

Avoid  Negative  Suggestions.  A  store  proprietor  finds 
himself  in  need  of  money;  but  that  is  not  necessarily  proof 
of  short-sighted  management.  In  fact,  this  call  for  cash  at 
certain  seasons  is  strictly  normal.  Feeling  this  pressure  for 

1  Alexander  Hamilton  Institute,  vol.  xii.  Business  Correspondence. 

170 


COLLECTION    CORRESPONDENCE 

money,  he  begins  to  squeeze  his  customers,  and  a  collection 
letter  is  sent  out  with  the  nai've  appeal,  "Having  heavy  pay- 
ments to  meet  in  the  near  future,  we  ask  you  to  oblige  with 
remittance."  It  is  such  an  appeal  that  is  negative  and  there- 
fore to  be  avoided.  The  one  excuse  for  collecting  an  account 
is  because  it  is  due.  And  in  that  event  no  apology  is  nec- 
essary. The  only  time  when  a  store  is  justified  in  putting 
abnormal  pressure  on  its  customers  and  literally  forcing  col- 
lections is  during  a  period  of  over-expansion  in  which  credit 
is  being  strained,  and  that  is  the  very  worst  time  to  do  it. 

Ordinarily,  the  first  resort  when  in  need  of  money  is  to 
go  to  one's  customers  and  ask  payments  on  account  due 
without  apology.  The  second  resort  is  for  the  store  to  with- 
hold money  from  its  creditors  and  keep  them  waiting  by 
means  of  extensions,  renewals,  claims,  and  various  other 
makeshifts  which  threaten  its  credit  standing.  The  third 
expedient  is  acute  economy.  Economy  should  be  chronic. 
Either  an  expense  can  be  eliminated — in  which  case  it 
should  have  been  cut  out  long  ago — or  it  cannot  be  elimi- 
nated, and  hence  to  economize  in  it  is  like  throwing  one  of 
your  engines  overboard  with  the  hope  of  speeding  up  the 
ship. 

A  little  East  Side  .New  York  girl,  who,  when  asked  to 
name  the  seasons  of  the  year,  replied,  "Busy  and  Dull," 
stated  one  of  the  principles  of  business  economy.  Based 
upon  the  certainty  that  there  will  surely  be  dull  seasons  as 
well  as  busy  ones  for  the  store,  the  collector  who  makes 
certain,  through  everlasting  vigilance  in  watching  the  fol- 
lowing accounts  in  all  seasons,  is  not  going  to  wait  until 
panic  times  and  the  acute  need  for  money  before  he  asks 
for  it.  When  he  asks  for  money  due  him  his  appeal  can  be 
made  positively  and  not  negatively  or  apologetically.  To 
argue  in  a  collection  letter  or  to  urge  that  you  "need  the 
money," — this,  by  the  way,  is  a  very  common  appeal  in 

171 


RETAIL  CREDITS  AND  COLLECTIONS 

collection  letters — indicates  that  you  are  not  ready  to  act. 
The  debtor  sensing  your  indecision  is  equally  ready  to  ad- 
vance his  excuses  and  lets  time  slip.  Again  if  the  letter  is 
a  printed  form,  it  suggests  that  you  are  not  watching  his 
individual  case.  He  feels  that  the  matter  is  not  yet  urgent. 
Successful  Types  of  Appeals.  There  are  three  basic  ap- 
peals on  which  collection  letters  may  be  hung,  all  of  them 
personal : 

1.  Appeals  to  good- will. 

2.  Appeals  to  pride. 

3.  Appeals  to  justice  and  fair  play. 

To  secure  the  best  results  the  debtor  should  be  studied 
to  determine  the  nature  of  the  appeal  to  be  made  to  him, 
the  one  that  will  reach  him  and  get  under  his  skin.  This 
appeal  must  be  directed  to  some  of  his  emotions ;  which  one 
can  be  best  determined  by  the  collector's  knowledge  of  the 
debtor.  There  are  a  great  number  and  variety  of  human 
emotions,  as  every  one  knows.  Some  of  them  lend  them- 
selves to  collection  letters.  For  example,  the  debtor  may 
be  reached  through  his  good-will,  pride,  shame,  honesty, 
saving,  fear,  or  curiosity.  All  these  are  easily  touched  and 
all  are  powerful  incentives  to  human  actions. 

Based  on  the  collector's  knowledge  of  the  debtor,  one 
line  of  appeal  should  be  chosen,  and  then  all  effort  concen- 
trated on  it.  If  there  is  some  doubt  as  to  the  appeal  which 
will  be  most  effective,  all  of  them  should  be  tried,  one  at  a 
time,  to  get  the  right  one,  to  produce  action. 

The  Appeal  to  Good  -  will.  The  appeal  to  good  -  will 
is  probably  one  that  can  be  used  to  best  advantage  in  most 
cases.  It  is  most  simple  and  gives  no  cause  for  annoyance 
to  the  most  sensitive.  It  may  be  used  on  any  customer; 
therefore,  especially  on  one  of  whose  exact  status  there  is  an 
uncertainty.  It  should  always  be  short  and  should  assume 

the  unquestioned  good-will  of  the  customer  toward  his  cred- 

172 


COLLECTION    CORRESPONDENCE 

itor,  without  the  slightest  question  or  doubt  that  the  appeal 
will  be  met  with  immediate  response  from  such  a  customer. 
An  example  of  such  an  appeal  to  good-will  is  the  following: 

DEAR  MR.  : 

If  anything  has  come  up  to  interfere  with  your  promise  to  send 
your  payment  by  the  10th  of  the  month,  you  would  surely  have 
written  us  long  before  this. 

Now  that  the  hurry  of  the  holidays  has  subsided  you  will  want 
to  attend  to  the  handling  of  this  payment  on  your  account  with 
your  usual  promptness. 

Knowing  how  easily  such  things  are  overlooked,  the  inclosed 
envelope  will  be  the  most  convenient  means  for  sending  your  check 

for$ 

Sincerely  yours, 

The  Appeal  to  Pride.  Every  student  of  human  nature 
knows  that  pride  is  one  of  the  strongest  emotions  and  the 
strongest  kind  of  incentive  to  human  action.  The  breadth 
of  the  appeal  to  pride  is  unlimited.  Really  all  accomplish- 
ment is  due  to  pride,  and  if  the  appeal  to  this  emotion  is 
skilfully  directed,  it  is  almost  certain  to  produce  the  desired 
results.  And  so  it  is  with  the  appeals  to  the  debtor's  sense 
of  shame  and  honesty.  When  the  debtor  has  learned  to 
reach  and  play  upon  these  emotions,  almost  any  account 
can  be  collected.  The  following  is  an  example  of  a  successful 
letter  appealing  to  the  customer's  pride: 

DEAR  MR.  : 

You  have  been  so  considerate  about  co-operating  with  us  in  the 
past,  that  we  feel  we  may  rely  upon  you  now  to  maintain  your  usual 
standard  of  payments  on  your  account.  Prompt  remittances 
help  us  to  give  the  very  best  measure  of  possible  service  to  our  cus- 
tomers. 

If  you  will  let  me  have  your  check,  therefore,  to  cover  your  ac- 
count past  due,  which  amounts  to  $....,  you  will  be  helping  very 
materially  to  this  worth-while  end.  We  are  counting  on  your  con- 
tinued co-operation. 

Sincerely  yours, 
173 


RETAIL    CREDITS    AND    COLLECTIONS 

Appeals  to  Justice  and  Fair  Play.  One  of  the  most  diffi- 
cult problems  faced  by  retail  stores,  especially  dry-goods 
stores  in  which  charge  accounts  are  allowed,  is  to  find  a 
safe  method  of  speeding  up  payments  of  customers  who  have 
let  themselves  get  into  the  "slow-pay"  class. 

The  collection  manager  of  a  New  York  department  store 
has  found  the  work  of  stimulating  collections  made  much 
easier  by  working  on  the  theory  that  the  average  "  slow- 
pay  "  customer  does  not  settle  more  promptly  because  the 
need  for  this  action  is  not  thoroughly  understood.  Most 
collectors  hesitate  to  call  customers'  attention  to  payments 
that  are  not  so  prompt  as  they  should  be,  to  what  may  seem 
to  them  like  a  small  matter. 

This  collection  manager  began  a  campaign  based  on  the 
theory  that  it  is  necessary  to  do  more  explaining  and  less 
dunning.  He  met  one  of  the  store's  charge  customers  one 
day.  This  woman,  while  "good,"  was  "slow  pay."  She 
complained  to  him  of  the  continual  requests  for  payments 
from  the  store.  Knowing  that  this  customer  was  well  able 
to  pay  an  ordinary  household  bill,  he  was  impressed,  after 
his  talk  with  her,  that  her  attitude  was  due  more  than  any- 
thing else  to  a  lack  of  understanding  of  the  need  for  prompt 
payments.  She  seemed  to  feel  that,  because  she  was  re- 
sponsible, the  store  should  be  perfectly  satisfied  to  wait 
until  she  could  find  it  convenient  to  give  the  account  her 
attention. 

After  considering  the  matter,  he  concluded  that  there 
must  be  many  others  of  the  store's  customers  in  the  same 
frame  of  mind.  Accordingly,  letters  were  written  from  a  new 
angle — with  startling  results.  Payments  began  to  come  in 
more  promptly.  In  just  a  short  time  practically  all  the 
store's  "slow"  accounts  were  brought  down  to  a  monthly 
settlement  basis. 

The  point  made  in  these  letters  was  not  that  the  account 

174 


COLLECTION    CORRESPONDENCE 

was  overdue,  but  the  important  fact  that  in  not  settling 
promptly  the  customer  was  making  a  deduction,  although 
not  visibly,  from  the  price  of  the  store's  goods.  In  other 
words,  it  was  shown  that  the  added  cost  of  carrying  the 
account  had  to  be  borne  by  all  the  store's  customers,  in- 
cluding those  who  paid  promptly.  The  letter  asserted  the 
belief  that  the  delinquent  customer  would  not  do  that  in- 
tentionally, and  that  the  store  was  sure  the  customer  would 
be  glad  to  know  the  situation  stated  frankly,  so  that  the 
real  need  of  meeting  bills  promptly  would  be  appreciated. 
Then  the  letter  went  on  to  show  how  prompt  payments  made 
the  store  more  truly  than  ever  one  of  single  price  to  all  cus- 
tomers. This  plan  was  based  on  a  simple  appeal  to  justice 
and  fair  play. 

Use  of  Form  Letters.  In  collection  correspondence,  while 
no  two  cases  are  exactly  alike,  it  is  possible  by  a  careful 
process  of  classification  to  so  group  the  various  accounts 
that  the  same  letter  will  answer  for  more  than  one.  The 
possibility  of  using  form  letters  to  _advantage  in  collecting 
accounts  is  more  apparent  in  the  early  stages  of  slowness 
and  delinquency  than  in  the  later  ones.  Some  collectors 
favor  the  use  of  letters  that  are  obviously  forms,  because 
they  show  plainly  that  one  is  being  treated  exactly  as  others 
are  being  treated,  and  so  give  little  offense  to  the  sensitive 
ones. 

There  is  danger,  however,  in  such  cases,  that  the  use 
of  a  letter,  obviously  a  form  letter,  may  result  in  further 
delay,  because  it  carries  the  definite  suggestion  that 
delay  is  common,  that  other  debtors  are  in  the  same 
boat,  and  that  the  failure  to  pay  is  considered  lightly 
by  the  creditor. 

Use  of  Form  Paragraphs.  There  is  a  distinction  between 
using  form  letters  and  letters  more  nearly  personal,  because 

they  are  carefully  fitted  to  the  individual  facts  in  each  case, 

175 


RETAIL    CREDITS    AND    COLLECTIONS 

but  which  at  the  same  time  are  constructed  out  of  form 
paragraphs. 

If  you  ask  your  stenographer  to  save  copies  of  some  of 
the  longer  and  more  important  letters  you  write  on  stubborn 
cases  for  a  period  covering,  say,  a  month,  and  then  take  the 
time  to  go  over  these  letters  critically,  you  can  very  easily 
pick  out  paragraphs  here  and  there  which  will  serve  for  use 
again  and  again  in  similar  cases.  These  paragraphs,  care- 
fully boiled  down  and  edited,  then  pasted  in  a  book  or  on 
cards  with  some  simple  system  of  numbering  the  classifica- 
tion, will  form  the  basis  for  an  effective  correspondence 
manual  whose  time-saving  possibilities  with  a  maximum  of 
quality  in  your  letters  will  well  repay  you. 

Form  letters  or  any  other  kind  of  letters  should  be  written 
as  you  feel,  not  as  you  think  they  ought  to  sound.  In  every 
letter,  no  matter  whether  it  is  to  be  read  by  one  or  many, 
there  should  be  some  word  or  phrase  or  thought  that  brings 
the  message  close  to  the  man  to  whom  it  is  addressed. 

No  ordinary  letter  should  run  over  three-quarters  of  a 
page  in  length.  No  one  likes  to  read  a  letter  longer  than 
that.  Collection  letters,  like  any  other  kind,  should  deal  with 
one  subject  only — the  amount  due.  Direct,  honest,  frank 
statements  that  have  a  distinct  ring  of  confidence  in  them 
are  characteristic  of  collection  letters.  In  the  preliminary 
notice,  however,  sometimes  in  the  letter  itself,  it  is  usual 
to  insert  announcements  of  a  few  offerings  of  goods  which 
may  interest  the  reader.  In  most  cases,  however,  such  an- 
nouncements are  best  made  in  the  form  of  a  separate  in- 
closure. 

Style,  Appearance,  and  Tone  of  Letters.  The  effect  of 
the  mechanical  appearance  of  a  letter  is  often  compared  to 
the  effect  of  the  clothes  worn  by  a  salesman.  Nearly  all 
people  who  know  what  is  good  form  in  letter-writing  are 

affected  unfavorably  by  the  lack  of  it  in  letters  that  they 

176 


COLLECTION    CORRESPONDENCE 

receive.  They  expect  good  form  as  a  matter  of  course. 
Correct  style,  appearance,  and  tone  of  a  letter,  therefore, 
are  not  so  much  a  positive  asset  as  they  are  a  precaution. 
They  ward  off  the  possibility  of  unfavorable  criticism  on 
that  score. 

A  plain  letter-head  without  ornamentation  is  preferred 
by  most  business  houses,  particularly  for  collection  letters. 
Sometimes  it  is  possible  to  assist  the  purpose  of  the  letter 
by  the  use  of  a  special  letter-head  which  will  help  to  center 
the  reader's  attention  on  the  message  and  give  it  additional 
force. 

As  for  the  tone  of  the  letter,  the  language  used  to  convey 
its  message,  it  goes  without  saying  that  it  must  conform  in 
every  way  to  the  policy  and  reputation  of  the  house.  Its 
choice  of  words,  its  mechanical  arrangement  of  heading  and 
salutation  and  closing,  must  be  such  that  it  will  in  no  way 
distract  the  reader's  attention  from  the  meaning  of  the 
message  itself. 


XII 


COLLECTING  BY  PERSONAL  CALL 

When  Personal  Collectors  Are  Effective.  While  many 
of  the  best  stores  have  now  dispensed  with  collectors  alto- 
gether, and  depend  upon  letters  and  statements  backed  by 
the  telephone  to  secure  payment  of  money  due  them,  there 
are  many  more  who  continue  to  use  both  methods.  The 
problem  is  largely  one  of  getting  the  right  people  to  act 
as  collectors;  for  it  stands  to  reason  that  the  collections 
through  personal  representatives  must  be  handled  very 
carefully.  The  accounts  credited  to  them  for  collection 
must  be  scrutinized  to  make  sure  that  no  mistakes  are 
made. 

It  is  agreed  that  to  secure  diplomacy,  salesmanship,  judg- 
ment, firmness,  resourcefulness,  persistency,  and  patience 
in  the  correct  proportion  that  go  to  make  up  the  ideal 
collector,  for  the  salary  that  is  ordinarily  paid,  is  almost 
impossible.  On  the  other  hand,  a  poor  collector  is  worse 
than  none  at  all.  There  are  times,  however,  when  collec- 
tions are  better  made  by  personal  visits.  Personal  effort 
is  sometimes  effective  after  the  resources  of  correspondence 
have  been  exhausted.  Collectors  are  therefore  still  to  be 
found  in  some  of  the  larger  mercantile  concerns,  and  in 
certain  lines  of  business  where  special  conditions  seem  to 
require  their  employment. 

Selecting  Personal  Collectors.    In  some  stores  the  work 

178 


COLLECTING  BY  PERSONAL  CALL 

of  personally  calling  upon  slow-pay  customers  is  intrusted 
to  a  regular  clerk  from  the  store,  who  is  given  only  a  few 
names  at  a  time  to  see,  and  who  must  turn  in  reports  on  all 
names  intrusted  to  him  before  others  are  assigned.  Obviously 
it  is  not  always  possible  to  find  capable  collectors  ready 
trained  and  entirely  trustworthy.  Since  they  are  subordinate 
to  the  collection  man,  and  valued  by  him  fully  as  much  for 
the  first-hand  information  they  are  able  to  secure  as  for  the 
actual  money  they  can  collect,  their  employment  and  train- 
ing is  usually  a  part  of  his  work. 

There  are  several  classes  from  which  collectors  are  usually 
recruited.  Not  infrequently  good  men  who  could  not  other- 
wise be  secured  will  take  a  collector's  job  for  the  sake  of  the 
outdoor  work.  Such  men  cannot  be  considered  as  entirely 
inexperienced,  although  the  work  of  collection  may  be  new 
to  them.  With  the  right  kind  of  help  and  advice  they  may 
be  developed  quite  rapidly  into  experienced  men. 

The  other  class  from  which  collectors  are  frequently 
recruited  consists  of  the  young  men  about  seventeen  or 
eighteen  years  old  who  are  looking  for  a  first  business  job. 
There  is  even  an  advantage  in  hiring  such  people,  for  a 
bright,  honest  young  man  with  no  previous  collection  ex- 
perience may  be  more  easily  trained  than  one  older  in  years. 

In  employing  a  collector,  no  matter  what  his  age  or  ap- 
pearance may  be,  (his  references  and  family  history  should 
be  the  object  of  the  closest  kind  of  scrutiny  and  inspection; 
and  as  it  is  fairer  both  to  him  and  to  the  house,  the  col- 
lector should  in  every  case  be  bonded.  The  fact  that  he  is 
accepted  by  a  bonding  company  is  good  evidence  that  he 
is  honest  and  has  a  clear  record,  because  such  companies 
never  assume  doubtful  risks. 

Qualifications  and  Employment  of  a  Collector.  Some 
previous  business  experience  and  a  sufficient  knowledge  of 
bookkeeping  to  enable  the  collector  to  keep  an  accurate 
13  179 


RETAIL    CREDITS    AND    COLLECTIONS 

record  of  what  he  collects  are  desirable.  He  should  be 
enough  of  a  salesman  to  realize  that  he  will  obtain  better 
results  and  more  fitly  represent  his  house  if  he  is  properly 
dressed  and  neat  in  appearance. 

As  people  are  apt  to  resent  requests  for  money,  even 
though  they  realize  it  is  due,  the  collector  will  need  to 
employ  some  tact  in  approaching  the  debtor  on  whom  he 
calls.  It  goes  without  saying  that  he  should  be  courteous 
as  a  matter  of  principle.  At  the  same  time  he  must  be  firm 
enough  not  to  be  easily  put  off  or  turned  aside  from  the  ob- 
ject of  his  visit. 

Patience  and  persistency,  with  a  minimum  of  sensitive- 
ness, are  essential  qualities  in  the  successful  collector,  if 
he  is  to  meet  the  reproaches  and  abuse  that  he  must  some- 
times encounter  with  dignity. 

Since  results  are  what  the  collection  man  wants,  the  col- 
lector must  be  energetic  enough  not  only  to  cover  his  daily 
stint  of  calls,  but  to  come  away  with  the  money  due,  or  with 
definite  promises  which  he  can  follow  up  later  with  success. 

Just  what  the  rate  of  payment  for  a  collector's  service 
should  be  will  depend  a  great  deal  on  local  conditions.  A 
good  collector  can  earn  from  ten  to  twenty  dollars,  or  more, 
a  week.  Another  arrangement  is  to  pay  the  collector  a 
nominal  salary  and  a  commission  on  all  he  collects  each 
week  above  a  specified  amount.  Such  a  plan  adds  much 
to  the  interest  in  his  work  and  to  the  results. 

As  a  matter  of  fact,  frequently  the  real  value  of  the  col- 
lector lies  in  the  information  secured  by  him  so  as  to  make 
it  possible  to  collect  a  large  number  of  accounts  by  mail.  A 
collector  is  particularly  useful  in  tracing  debtors  who  have 
moved. 

Training  of  Collectors.  The  importance  to  the  house 
of  proper  training  for  the  collector  requires  no  special  em- 
phasis. To  produce  the  best  results  the  collector  should  be 

180 


COLLECTING  BY  PERSONAL  CALL 

impressed  with  the  necessity  of  working  systematically.  He 
should  be  made  to  feel  that  the  manager  is  ready  to  give 
him  help  and  advice  when  he  needs  it,  and  that  the  house 
is  standing  back  of  him  in  all  his  efforts.  Once  employed, 
a  collector  should  not  be  discharged  or  replaced  in  his  ter- 
ritory except  for  the  best  of  reasons. 

The  knowledge  he  is  able  to  gain  of  the  accounts  and  of 
the  store's  customers  gives  him  a  constantly  increasing  help 
toward  better  results  than  would  be  possible  for  a  new  man. 
It  is  well  also  to  remember  that  this  information  would  be 
of  equal  value  to  a  competing  concern. 

The  collector  should  be  systematically  schooled  to  know 
the  store's  business,  not  that  he  may  make  sales  for  it,  but 
that  he  may  be  able  to  discuss  its  accounts  and  its  affairs 
intelligently  when  necessary.  Unless  he  is  more  or  less 
familiar  with  the  details  of  the  business  he  is  at  a  distinct 
disadvantage  when  he  is  called  upon  to  meet  protests, 
objections,  or  evasions  from  delinquent  customers. 

When  to  Appeal  for  Payment.  Two  things  for  the  col- 
lector to  decide  in  presenting  an  account  for  payment  are: 
1.  The  best  time  for  dunning  a  debtor.  2.  The  best  place. 

In  answer  to  the  first,  it  is  necessary  to  determine,  as  far 
as  possible,  when  the  debtor  will  have  the  money.  This 
involves  a  matter  of  income — when  and  how  it  is  received. 

Debtors  will  divide  naturally  into  two  classes:  1.  Those 
in  business  for  themselves.  2.  Wage  or  salary  earners. 

Debtors  still  further  divide  naturally  into  classes  or 
groups  by  particular  business  positions,  like  bookkeepers, 
clerks,  and  the  like,  and  by  payments  of  salaries.  That  is 
on  the  basis  on  which  salaries  are  paid.  For  example, 
street-railway  employees  are  all  paid  on  the  same  date, 
and  naturally  fall  into  one  group. 

In  collecting  the  accounts  of  people  in  business,  since  it  is 

customary  to  pay  current-expense  accounts  about  the  10th 

181 


RETAIL    CREDITS    AND    COLLECTIONS 

of  each  month,  the  collector's  approach  a  day  or  two  before 
may  serve  the  purpose  of  getting  the  account  scheduled  for 
payment  with  other  bills.  Jobbing  houses  and  wholesalers 
usually  have  money  in  May,  and  the  1st  of  June,  November, 
and  December,  when  billing  for  spring  and  fall  goods  is 
liquidated. 

With  the  general  retailer,  Monday  morning  should  be 
a  distinctly  favorable  time  for  presenting  bills  for  payment, 
because. the  merchant  has  in  his  hands  then  the  proceeds 
of  Saturday's  business. 

Office  employees  on  salary  are  usually  paid  twice  a  month, 
on  the  1st  and  the  15th.  Wage-workers  receive  their  money, 
as  a  rule,  on  Saturday  or  Monday.  Store  employees  receive 
their  money  on  Saturday  night  at  the  close  of  business.  The 
sooner  the  collector  can  get  to  these  people  after  receiving 
their  earnings,  the  better  his  chance  for  collection. 

The -Awkward  Call.  A  method  of  personally  collecting 
bad  accounts  in  which  a  direct  appeal  is  made  to  the  emo- 
tions is  known  as  the  "awkward  call,"  which,  it  will  appear, 
is  a  method  to  be  used  only  in  very  exceptional  cases.  The 
collector  selects  a  time  when  there  is  a  festivity  in  progress  at 
the  debtor's  house.  The  collector,  having  learned  this  fact, 
calls.  He  makes  inquiry  for  the  debtor  and,  if  he  can  do  so, 
secures  entry.  He  presents  his  account,  insisting  on  payment. 
The  debtor  naturally  demurs.  The  collector  insists  more  ur- 
gently and  more  loudly.  The  attention  of  the  guests  is  at- 
tracted, much  to  the  discomfiture  of  the  delinquent  debtor. 
The  results  of  the  call  will  depend  entirely  upon  the  col- 
lector's ability  and  the  financial  resources  of  the  debtor.  If 
the  collector  is  persistent  and  refuses  to  be  daunted  by 
threats  or  cajoled  by  promises,  the  money,  in  whole  or  in 
part,  is  very  likely  to  be  forthcoming.  The  collector  may 
vary  the  procedure  in  several  ways.  He  may  present  his 

bill  when  the  debtor  is  attending  an  entertainment  in  the 

182 


COLLECTING  BY  PERSONAL  CALL 

house  of  a  friend,  or  he  may  interrupt  him  in  the  middle 
of  an  important  business  interview. 

Where  to  Appeal  for  Payments.  If  the  debtor  is  an  em- 
ployee, presentation  of  the  bill  at  his  place  of  employment 
may  be  resorted  to,  but,  since  this  may  result  in  the  em- 
ployee's discharge,  thus  incapacitating  him  from  paying 
the  debt,  this  method  must  be  used  with  care.  The  debtor's 
knowledge  of  the  intention  to  resort  to  this  measure  is 
often  more  effective  than  its  actual  fulfilment. 

The  " sweating  process"  is  another  variation  of  the  awk- 
ward call.  It  requires  a  collector  of  good  conversational 
powers,  considerable  courage,  and  some  physical  strength. 
He  calls  with  the  overdue  account  at  the  debtor's  house, 
and  stays  there  until  he  gets  the  money  or  becomes  con- 
vinced that  no  money  is  to  be  had.  As  may  be  imagined, 
the  process  is  a  disagreeable  one  for  both  debtor  and  col- 
lector. Arguments,  persuasion,  threats,  are  all  called  into 
use  until  either  the  debtor  or  the  collector  becomes  exhausted 
and  gives  up.  While  it  is  useful  only  for  a  certain  class  of 
accounts,  it  is  usually  very  effective. 

A  certain  Kansas  City  collection  manager  has  worked 
out  a  plan  by  which  the  store's  delivery  men,  for  the  time 
being,  act  as  collectors.  He  calls  it  his  "C.  O.  D."  plan.  A 
customer  whose  credit  is  perfectly  good  but  who  becomes 
forgetful  at  times  allows  her  account  to  drag  thirty  days 
behind,  and  then,  without  heeding  letters,  comes  into  the 
store  and  orders  more  goods.  The  plan  begins  to  operate 
when  the  purchase  slip  comes  up  to  him  for  O.  K. 

The  condition  of  the  account  is  noted  and  instructions 
are  given  to  send  goods  C.  O.  D.  Next  morning  the  driver 
rings  the  customer's  door-bell  and  asks  for,  say,  twenty- 
five  dollars  for  the  package  he  brings.  Naturally  the  cus- 
tomer becomes  indignant,  insisting  there  must  be  a  mistake. 

Her  purchases  are  always  charged.    The  driver,  however, 

183 


RETAIL    CREDITS    AND    COLLECTIONS 

has  no  alternative.  He  must  bring  back  the  money  or  the 
goods.  He  suggests,  however,  that  she  call  up  the  store  by 
'phone  and  ask  the  credit  man  for  an  explanation.  This  is 
exactly  what  he  is  counting  on  her  to  do.  He  explains  that 
her  account  is  considerably  overdue,  suggesting  that  prob- 
ably some  subordinate  in  the  department,  unappreciative 
of  the  extent  of  her  patronage,  has  held  up  her  charge,  then, 
apologizing,  he  asks  the  customer  to  call  the  driver  to  the 
'phone  and  tells  him  to  leave  the  goods.  The  customer  re- 
ceives the  goods,  but  she  also  receives  a  mental  shock  re- 
garding her  delinquency.  Usually  a  check  for  the  balance 
due  on  her  account  reaches  the  store  within  the  week  fol- 
lowing. 

Methods  of  Handling.  In  a  typical  case  of  a  store  in 
a  town  of  twenty  thousand  population,  one  collector  only 
is  needed.  The  town  is  divided  into  four  sections,  one  for 
each  week  of  the  month.  The  accounts  for  each  section  are 
divided  into  five  parts,  each  part  making  up  a  day's  collec- 
tions. Saturday  is  devoted  to  making  out  statements  for 
the  following  week.  Each  statement  is  made  out  in  tripli- 
cate. Every  morning  the  collector  receives  two  copies  of 
each  statement  assigned  to  him  for  the  day.  He  receipts  one 
of  these  and  leaves  it  with  the  customer,  when  he  receives 
payment  for  the  account.  The  other  copy  is  turned  in  at 
the  office,  with  the  amount  collected.  When  no  collection 
is  made,  both  copies  must  be  returned.  A  customer  is  noti- 
fied in  advance  about  the  arrangements,  so  that  he  will 
know  what  day  of  the  month  the  collector  will  call.  Back 
calls  are  simply  filed  ahead  a  couple  of  days,  and  then  re- 
turned to  the  collector  for  a  second  attempt.  A  good  man 
should  easily  be  able  to  make  thirty  calls  a  day  unless  his 
route  is  scattered.  Collectors  should  be  required  to  report 
promptly  every  morning  at  a  definite  time.  Every  man 

should  be  given  his  batch  of  accounts  to  follow  up,  and  he 

184 


COLLECTING  BY  PERSONAL  CALL 

should  be  expected  to  report  at  night,  when  a  written  report 
of  each  call  on  the  list  should  be  made.  Every  dollar  col- 
lected should  be  turned  in  with  these  reports. 

Daily  Reports.    The  written  report  required  on  every 
call  made  should  include  the  following  points: 

1.  Did  you  interview  debtor?    If  so,  what  did  he  say? 

2.  Is  the  debtor  married  or  single? 

3.  Does  the  debtor  own  his  own  home?    Does  he  rent  a  house? 

Does  he  live  in  a  flat?    Does  he  board? 

4.  Where  does  he  work?    What  is  his  employer's  name? 

5.  What  household  goods  does  he  appear  to  own? 

6.  Has  he  a  piano  or  any  other  apparent  luxury? 

7.  Are  his  surroundings  good  or  poor? 

8.  What  do  his  neighbors  say  as  to  his  honesty  and  general  repu- 

tation? 

9.  How  much  salary  do  you  think  the  debtor  gets?    What,  if  any, 

outside  resources  does  he  possess? 


XIII 

UNUSUAL   COLLECTION   METHODS 

Why  Unusual  Methods  Are  Necessary.  In  addition  to 
the  ordinary  methods  used  in  the  collection  of  past-due  ac- 
counts, every  collection  man  finds  it  necessary  sooner  or 
later  to  resort  to  extraordinary  measures — methods  un- 
usual enough  to  be  unexpected  and  therefore  effective. 

At  every  stage  in  the  collection  of  stubborn  accounts, 
there  is  an  opportunity  to  short-cut  the  ordinary  routine, 
to  think  ahead  of  the  debtor,  and  to  be  ready  waiting  for 
him  when  he  turns  the  next  mental  corner.  The  unusual 
methods  require  judgment,  tact,  imagination,  and  knowl- 
edge of  human  nature  on  the  part  of  the  one  who  uses  them. 

Honesty  is  a  very  common  quality.  Customers  can  gen- 
erally be  depended  upon  to  meet  their  obligations  if  to  do 
so  does  not  involve  a  hardship.  It  is  when  the  payment 
means  self-denial  and  personal  hardship  that  many  are  put 
to  the  real  test. 

The  man  with  a  collection  problem  to  solve  must  get  close 
to  the  man  who  owes  him.  Many  accounts  are  lost  to  the 
creditor  because  the  debtor  feels  sheltered,  one  among  the 
many.  Your  collection  letters  come  to  him  as  one  of  hun- 
dreds sent  to  delinquents  whom  you  follow  up  in  the  same 
way. 

The  purpose,  then,  of  the  unusual  collection  methods,  like 

that  of  the  usual  ones,  is  to  single  out  the  delinquent  and 

186 


UNUSUAL  COLLECTION  METHODS 

to  let  him  feel  that  you  are  talking  to  him  alone.  The  typical 
dead  beat,  declares  one  authority,  is  a  post-graduate  of  the 
school  of  extravagance.  At  least  75  per  cent,  of  the  dead 
beats  have  been  put  into  that  class  by  women.  The  per- 
centage of  dead  beats  is  much  higher  among  married  men 
than  among  bachelors. 

A  young  man  getting  a  small  salary  marries.  Perhaps 
he  does  so  on  the  old  theory  that  two  can  live  as  cheaply 
as  one.  The  young  husband  wants  to  see  the  girl  he  has 
married  have  as  much  and  live  as  well  as  her  old  associates. 
So  he  gets  into  debt,  but  somehow  he  cannot  apply  the  brakes 
or  catch  up  again. 

He  staves  off  the  men  who  trust  him  and  becomes  slow. 
At  length  he  becomes  accustomed  to  the  duns  and  the  legal 
processes  of  tradesmen.  He  learns  then,  if  he  is  sharp 
enough  and  not  too  thin-skinned,  he  can  tire  them  out. 
Most  retail  merchants  understand  all  this  in  a  vague  way, 
but  what  they  fail  to  grasp  is  the  fact  that  they  can  by 
proper  methods  stop  the  development  of  the  dead  beat  in 
most  cases,  and  that  there  is  a  way  to  reach  the  most  hard- 
ened and  adroit  offender  if  sufficient  originality  is  brought 
to  bear. 

Taking  Notes  in  Settlement.  From  those  who  really 
intend  to  pay  at  some  future  time,  promissory  notes  may 
frequently  be  secured  in  settlement  of  a  claim,  when  it  is 
impossible  to  secure  cash. 

Such  a  note  discounted  or  deposited  with  the  bank  for 
collection  is  more  likely  to  be  paid  than  if  it  is  left  in  the 
form  of  a  bill,  or  presented  by  the  individual  or  concern 
to  whom  it  is  given.  Because  of  the  semi-public  character 
of  its  position  in  the  community,  the  bank  can  many  times 
secure  payment  of  the  claim  where  the  creditor  cannot. 

Telephone  Calls.    In  the  collection  of  accounts  which 

may  be  just  ordinarily  slow,  the  use  of  the  telephone  will 

187 


RETAIL    CREDITS    AND    COLLECTIONS 

often  serve  to  bring  in  past-due  payments  which  have  pos- 
sibly been  "overlooked."  Its  effect  upon  the  debtor  is  as 
good  as  that  resulting  from  a  personal  interview.  An  ex- 
planation of  the  delay  may  be  asked,  the  importance  of 
prompt  payment  may  be  urged,  and  the  whole  matter 
gone  into  with  as  much  detail  as  the  circumstances  seem  to 
warrant.  Persuasion,  entreaty,  and  even  abuse  may  be 
used.  Letters  which  could  not  be  written  without  liability 
for  libel  may  safely  be  talked  over  the  telephone. 

There  is,  however,  one  great  defect  in  collecting  by  tele- 
phone. The  money  cannot  be  secured  then  and  there.  The 
debtor's  mind  may  be  brought  up  to  the  point  of  payment, 
the  most  sincere  of  promises  may  be  secured,  but  the  actual 
immediate  money  cannot.  This  must  await  the  chilling 
effect  of  the  debtor's  second  thought.  If  he  has  been 
brought  to  the  paying-point  the  collection  man  may,  of 
course,  suggest  sending  for  the  money  at  once,  but  if 
this  is  not  feasible  or  not  acceptable  to  the  debtor,  he 
must  await  the  remittance. 

It  will  be  well  to  note  that  a  person  attempting  later  to 
prove  a  telephone  conversation  with  another  must  prove  a 
previous  conversation  face  to  face  with  that  person,  and 
must  be  able  to  swear  that  he  would  know  his  voice  and  recog- 
nize it  when  heard.  The  fact  that  most  voices  do  not 
sound  the  same  over  the  telephone  as  in  ordinary  conversa- 
tion is  a  fact  that  must  be  considered  in  proving  telephone 
conversations. 

Registered  Letters.  When  a  delinquent  debtor  pays 
no  attention  to  letters  and  is  not  accessible  to  personal  calls 
or  telephone  communication,  the  registered  letter  may  be 
used  to  good  effect.  Such  a  letter,  sent  with  the  express 
direction  that  it  shall  be  delivered  to  the  addressee  only, 
and  a  return  receipt  required,  calls  forceful  attention  to  the 

fact  that  other  letters  have  not  been  answered,  states  the 

188 


UNUSUAL  COLLECTION  METHODS 

condition  of  the  account,  and  gives  unmistakable  evidence 
that  the  matter  is  up  for  attention. 

The  effectiveness  of  the  registered  letter  is  due  to  its 
semi-official  character.  Registry  is  formal  and  unusual. 
When  the  delinquent  receives  a  registered  letter  in  refer- 
ence to  his  account  he  will  in  most  cases  conclude  that  his 
neglect  of  the  account  is  becoming  serious  and  that  there 
must  be  more  in  it  than  appears  on  the  surface.  He  knows 
that  the  letter  was  registered  and  that  he  has  signed  a 
receipt  for  it,  but  he  does  not  know  why  this  was  done  or 
what  use  is  to  be  made  of  the  receipt.  His  imagination  is 
then  likely  to  prove  a  valuable  ally  of  the  creditor.  It  is 
always  a  distinct  point  gained  when  a  delinquent  debtor 
can  be  brought  into  personal  touch  and  to  a  formal  recog- 
nition of  the  fact  that  his  debt  exists;  and  this  a  registered 
letter  will  in  most  cases  bring  about. 

Writing  to  Friends,  Relatives,  and  Guarantors.  When  the 
delinquent  debtor  fails  to  answer  communications,  although 
there  is  reason  to  believe  that  he  is  actually  receiving  the 
letters,  the  collector  will  often  find  it  very  effective  to  in- 
timate to  him  that  if  no  response  is  received  to  the  letters, 
the  concern  will  write  to  one  or  more  of  the  friends,  relatives, 
or  references  whose  names  the  debtor  gave  at  the  time  he 
opened  the  account. 

This  will  often  bring  a  reply,  but  if  it  fails  to  do  so,  it  is 
then  entirely  in  order  to  write  as  suggested.  The  letter  may 
simply  ask  for  the  present  address  of  the  debtor,  without 
mentioning  his  indebtedness,  or  it  may  explain  that  the 
delinquent  is  indebted  to  the  concern,  that  letters  written 
to  him  have  received  no  attention,  and  asking  for  informa- 
tion as  to  his  whereabouts.  This  action  will  bring  a  certain 
amount  of  pressure  to  bear  upon  the  debtor,  which  may 
lead  to  payment  of  the  account. 

It  may  happen,  also,  that  friends  or  relatives  will  be  in- 

189 


RETAIL  CREDITS  AND  COLLECTIONS 

duced  to  pay  the  debtor's  account  themselves,  rather  than 
permit  the  matter  to  become  public.  This  is  especially 
likely  to  follow  if  the  debtor  has  resorted  to  underhanded 
or  fraudulent  means  of  evading  payment. 

Sometimes  the  mere  writing  of  a  letter  of  inquiry  to  a 
delinquent's  employer,  which  is  likely  to  be  referred  to  him, 
even  when  it  discloses  nothing  of  the  real  reason  for  writing 
except  the  wish  to  obtain  the  address  will  brag  the  desired 
response. 

Tracing  Lost  Debtors.  One  of  the  problems  of  every 
collection  manager  is  the  tracing  of  debtors  who  move 
about  frequently  and  forget,  purposely  or  otherwise,  to 
give  any  notice  of  such  intentions  to  move,  or  to  leave  any 
information  concerning  the  new  address. 

Almost  any  method  of  tracing  demands  concealment  of 
motive.  It  is  foolish  and  futile,  in  seeking  information  re- 
garding a  "skipping  debtor,"  to  tell  his  friends  or  neighbors 
that  you  have  a  bill  against  him  and  that  you  would  be 
obliged  to  them  for  information  giving  his  new  address. 

Inquiries  made  of  neighbors  and  near-by  stores -are  more 
likely  to  give  results  when  the  report  or  information  asked 
seems  to  come  from  the  representative  of  a  mercantile  agency 
or  some  one  of  that  general  type.  No  man  ever  lived  who 
has  been  able  to  leave  a  neighborhood  without  forming 
some  acquaintanceships  or  connections.  The  object  of  the 
tracer  is  to  find  these  connecting  links.  Those  acquainted 
with  the  debtor  are  willing  to  do  him  either  a  good  or  a  bad 
turn,  if  properly  approached  by  one  acting  in  the  capacity  of 
an  investigator  into  the  debtor's  credit.  Many  men  leave 
disgruntled  and  dissatisfied  neighbors  and  acquaintances 
behind.  Their  reports  are  as  full  and  as  complete  as  the  re- 
ports of  those  who  are  friendly  to  the  debtor  and  who  wish 
to  give  him  a  good  character.  Both  usually  give  voluntarily 

the  present  or  possible  address  of  the  man  sought. 

190 


UNUSUAL  COLLECTION  METHODS 

Tracing  Through  Changes  of  Address.  One  measure 
of  preparedness  against  loss  from  "skippers"  lies  in  the 
insistence  by  the  credit  man  on  getting  the  names  of  one 
or  two  friends  as  references  -when  the  account  is  opened. 
Another  important  item  of  information  that  should  always 
be  sought  is  his  "former"  address.  This  will  often  help  to 
trace  the  debtor  back  to  some  neighbor  who  may  be  of  help 
in  looking  him  up  later. 

Never  erase  an  address  from  your  records.  If  a  man  moves 
to  a  new  address,  simply  run  a  line  through  the  old  one  and 
put  in  the  new  one. 

The  collection  manager  of  a  Duluth  (Minnesota)  store 
makes  use  of  a  small  printed  slip  provided  for  recording 
changes  of  address  as  follows: 


Date 

Ledger 

Name 

From 

To 

Card                                  Ledger 

Taken  by 
Memo. 

Changed  on 

After  this  change  of  address  is  recorded  in  the  collection 
card,  ledger,  and  mailing-list,  it  is  sent  to  the  local  credit 

association,  where  it  is  valued  highly. 

191 


RETAIL  CREDITS  AND  COLLECTIONS 

Tracing  Through  City  Moving  Ordinance.  In  some 
cities  local  ordinances  have  been  put  into  effect  under  which 
all  moving  firms  and  storage  companies  are  obliged,  under 
the  law,  to  report  promptly  all  movements  of  household 
effects  by  them,  with  full  information  as  to  the  old  and  the 
new  addresses  to  which  delivery  has  been  made. 

In  cities  where  such  an  ordinance  is  in  force  the  col- 
lection man's  troubles  are  considerably  lessened,  partic- 
ularly when  he  is  endeavoring  to  locate  a  lost  debtor. 
The  city  of  Duluth,  Minnesota,  has  such  an  ordinance, 
and  under  it  movements  of  debtors  are  recorded  with 
something  like  official  regularity. 

Tracing  Through  Post-office.  There  is  a  postal  law,  sec- 
tions 551  and  560,  Postal  Laws  and  Regulations  of  1893,  of 
which  a  certain  collection  man  has  had  a  rubber  stamp  made 
to  use  on  the  face  of  the  store's  request  envelope.  It  reads 
like  this: 

Postmaster 
See  Sections  551  and  560,  P.  L.  &  R.  1893 

Give  Reasons  Returned 
Check  one  of  the  following  reasons: 
Refused 
Unclaimed 
Cannot  be  found 
Present  address  unknown 
Removed  to 

Under  present  conditions  the  letter-carrier  or  post-office 
will  usually  give  very  little  information  regarding  the  for- 
warding address  of  any  one  who  has  moved,  because  it  is 
against  the  Postal  Laws  and  Regulations.  Registered  letters 
will  not  bring  back  a  receipt  from  the  man  you  are  looking 
for  unless  you  write  or  stamp  on  the  face  of  your  envelope, 
"Receipt  Requested,"  and  then  it  does  not  contain  any  defi- 
nite information  as  to  the  address  where  delivered. 

192 


UNUSUAL  COLLECTION  METHODS 

While  the  postmaster  cannot  legally  give  the  change  of 
address  of  any  one,  yet,  if  you  will  send  your  city  mailing- 
lists  to  him  for  correction  of  addresses,  he  can  correct  your 
whole  list  at  a  charge  of  about  40  cents  an  hour  for  clerical 
time,  and  do  it  legally.  In  this  way  you  can  often  locate 
people  who  would  otherwise  escape  you. 

Tracing  Through  Express  Company.  There  are  other 
methods  of  tracing  by  which  a  concern  makes  use  of  sta- 
tionery bearing  the  caption  of  an  "express  company "  with 
a  return  card  to  the  company's  own  place  of  business  in 
the  corner  of  the  envelope.  The  letter  mentions  an  un- 
delivered express  package  directed  to  the  skipper,  and 
incloses  a  postal  with  the  request  that  proper  shipping 
address  be  sent  so  that  the  "express  company"  may 
forward  the  package. 

Tracing  Through  "  Trustee "  Letters.  Another  plan, 
known  as  the  "trustee  letter,"  makes  use  of  the  local  credit 
association  or  some  other  suitable  address  which  may  ap- 
pear on  the  envelope.  When  a  debtor  is  to  be  located  the 
name  of  the  party  sought  is  inserted  under  "Subject"  at 
the  top  of  the  letter-head,  and  the  letter  mailed  in  a  plain 
envelope  with  "Return  to  Lock  Box ,  Duluth,  Minne- 
sota," or  whatever  address  is  chosen,  in  the  upper  left- 
hand  corner,  to  as  many  friends  and  relatives  of  the  debtor 
as  there  are  addresses  available.  With  each  letter  a  stamped 
envelope  is  inclosed,  addressed  in  the  same  way.  If  the 
letter  is  returned  undelivered,  or  if  it  comes  back  with  the 
address  wanted,  the  credit  association  at  the  same  time  cor- 
rects its  records. 

In  practice  it  quite  often  happens  that  people  who  receive 
these  letters  forward  them  to  the  parties  sought,  and  they 
in  turn  fill  out  the  blanks  themselves  and  return  them. 

Tracing  Through  "iCredit  World."   An  excellent  means  of 

country-wide  tracing  of  lost  credit  is  made  possible  through 

193 


RETAIL  CREDITS  AND  COLLECTIONS 

the  pages  of  the  monthly  publication  of  the  Retail  Credit 
Men's  National  Association,  known  as  the  Credit  World. 
This  publication  has  for  one  of  its  chief  objects  the  publica- 
tion of  lists  of  lost  debtors  who  are  wanted  for  any  reason  at 
all  in  any  part  of  the  country. 

It  may  very  easily  happen  that  creditors  in  one  section 
of  the  United  States  may  thus  be  officially  warned  against 
habitual  debtors  who  have  moved  from  other  parts,  and 
it  serves  those  who  are  on  the  trail  of  debtors  who  have  dis- 
appeared, as  another  method  of  finding  them  through  the 
clearing-house  offered  by  this  publication.  Its  pages  are 
free  to  any  one  who  will  send  in  a  list  of  names  of  debtors 
sought. 

Other  Tracing  Systems.  There  are  privately  owned 
concerns  who  advertise  to  secure  the  addresses  of  lost  debtors 
in  any  part  of  the  country  for  a  fee  of  one  dollar.  A  regis- 
tration fee  of  ten  cents  is  required  with  the  understanding 
that  the  new  address,  if  it  is  secured,  will  be  submitted  in 
the  debtor's  own  handwriting  for  the  client's  verification, 
and  if  found  to  be  correct  the  balance  of  the  fee,  ninety  cents, 
will  be  due. 

Other  plans  of  this  sort  are  usually  variations  on  the 
" express  company"  plan,  offering  a  full-paid  subscription 
to  a  magazine  or  to  deliver  a  package,  as  the  case  may  be. 
A  certain  amount  of  success  has  been  secured  by  such  con- 
cerns. 

Black  Lists.  In  collection  work  threats  of  action  to 
follow  non-attention  to  bills  and  letters  must  be  used  with 
much  caution,  or  they  may  involve  the  user  in  most  un- 
pleasant entanglements.  A  credit  threat  where  a  collector 
explains  that  as  a  member  of  some  credit  association  he  is 
required  to  report  all  bad  debts,  is  well  within  his  rights. 
He  may  explain  the  embarrassment  felt  because  of  his  wish 

to  protect  the  debtor.     Because  the  account  has  run  a 

194 


ACCOUNTS  FOR  SALE 

THE  CREDITORS'  ASSOCIATION 

As  Agents,  offer  the  following  judgments,  notes  and  accounts  for  sale  to  the  highest  bidder, 
'ng  the  right  to  reject  any  or  all  bids. 


t  ADDBESS.        AMOUNT. 

F££  ISSKSfc  "•"••'• "-rSTSarfcr  XX 

'   W?'7U  N.poUoi  A.. _....Nr«  Orl««n*  L. J.M 

ieora     1011    PhrtiD  &  —         N««  OrU»nt.  La S.tt 

it  is  §cl^A-=i=ba:  8X:^:  !±=  t8 

H.,«»  Vrt^.  »-.-__.-: N^OH-n..^.....    J.JJ 


THE  CREDITORS*  ASSOCIATION 


GENERAL  SOUTHERN  OFFICES: 


52 1  Carondelet  Street 

UW«C  DISTANCE  TELEPHONE  MAIN  M»l 


NEW  ORLEANS,  LA; 


14 


195 


RETAIL    CREDITS    AND    COLLECTIONS 

long  time,  the  debtor  will  realize  that  such  a  listing  of  his 
name  among  slow-pay  customers  is  not  unreasonable.  Under 
such  circumstances,  the  debtor,  when  asked  to  come  to  the 
mutual  relief  of  himself  and  his  creditor,  will  frequently  re- 
spond, because  the  debtor  naturally  does  not  wish  to  have 
his  name  included  in  the  list,  since  he  does  not  know  how 
widely  his  delinquency  may  be  published  if  he  refuses  to 
settle. 

Any  resort  to  threats  or  expedients  like  this  must  naturally 
be  used  with  caution,  because  in  some  states  the  laws  govern- 
ing the  collection  of  bad  debts  are  so  strict  that  such  threats 
may  render  the  creditor  liable  to  a  penalty. 

Offering  Debtors'  Delinquent  Accounts  for  Sale.  Retail 
collection  managers  for  stores  in  New  Orleans,  Louisiana, 
have  developed  a  plan  which  is  most  effective  in  the  round- 
ing up  of  accounts  by  listing  the  names,  addresses,  and 
amounts  due  on  the  accounts  of  all  delinquents  in  the  com- 
munity and,  after  sending  out  two  fairly  stiff  letters  to  these 
delinquents,  writing  a  third-  letter  with  the  actual  threat 
to  offer  the  account  for  sale;  then,  finally,  a  letter  to  a 
selected  list  of  people  in  the  city  offering  to  sell  the  account, 
making  sure  that  the  list  of  those  who  receive  this  letter  and 
the  list  includes  several  neighbors  of  each  delinquent. 

It  is  said  that  this  plan  works  very  effectively  and  that 
it  has  been  declared  legal  in  the  state  of  Louisiana.  A  list 
such  as  that  described  is  reproduced  on  page  195. 


XIV 

FORCING  COLLECTION  OF  DIFFICULT  ACCOUNTS 

When  Should  Pressure  Be  Applied?  When  a  debtor, 
in  spite  of  all  the  effort  expended  upon  him,  pays  no  at- 
tention to  bills  or  statements  or  letters,  fails  to  keep  his 
promise  or  to  explain  his  delinquency  or  to  pay,  the  collec- 
tion man  must  decide  how  strong  a  pressure  he  can  afford 
to  exert. 

He  realizes  that  accounts  followed  to  the  last  extreme 
of  unpleasantness,  even  if  collected,  pull  down  the  average 
of  charge-account  profits.  He  knows,  too,  that  a  point  is 
reached  somewhere  in  the  follow-up  where  the  cost  of  col- 
lecting overshadows  the  returns  he  can  secure. 

There  are  considerations,  however,  other  than  the  actual 
recovery  of  money  due,  which  must  be  kept  in  mind  by 
the  man  who  directs  the  store's  collection  policy.  One  is 
to  determine  whether  all  possible  means  have  been  taken 
to  adjust  the  account  peacefully,  because  he  realizes  that 
a  resort  to  legal  measures  is  expensive,  always  troublesome, 
and  invariably  means  the  loss  of  at  least  one  customer  and 
sometimes  more. 

Under  ordinary  circumstances  the  collection  man  will  pre- 
fer to  retain  control  of  the  account,  resisting  the  temptation 
to  call  upon  his  attorney  or  the  local  collection  agency  until 

all  possible  efforts  have  been  made  to  get  from  the  debtor 

197 


RETAIL  CREDITS  AND  COLLECTIONS 

the  real  cause  of  his  delinquency  and  some  definite  idea  of 
what  he  intends  to  do  about  his  account. 

If  the  debtor  can  be  made  to  explain  his  circumstances 
some  workable  adjustment  of  the  matter  is  nearly  always 
possible.  But  where  this  information,  despite  repeated 
efforts  to  get  it,  is  withheld,  the  collection  man  has  no  choice. 
He  must  proceed  to  unpleasant  measures  to  guard  the  in- 
terests of  his  house. 

When  this  stage  is  reached  the  debtor  will  naturally  be 
told  that  the  claim  against  him  is  about  to  be  placed  in 
the  hands  of  the  attorney  or  the  collection  bureau  of  the 
local  credit  men's  association,  for  collection.  If  he  wants 
to  prevent  the  taking  of  this  step  he  must  remit  or  explain 
his  delinquency  before  a  certain  date,  which  is  fixed,  just 
far  enough  ahead  to  permit  his  answer  to  reach  the  store's 
collection  man. 

Then  if  the  debtor  fails  to  respond  there  is  nothing  left 
to  do  but  make  good  the  threat  of  further  action,  and  there 
should  be  no  further  direct  dealing  with  him.  From  this 
time  on — at  least  so  far  as  the  debtor  knows — the  local 
attorney,  or  the  collection  bureau  in  whose  hands  the  matter 
has  been  placed,  should  be  considered  to  be  in  full  charge 
of  the  account. 

Investigation  Before  Resorting  to  Force.  Before  actually 
relinquishing  his  direct  control  of  the  account  to  the  at- 
torney, however,  the  forehanded  collection  man  will  usually 
undertake  a  final  reinvestigation  of  the  debtor,  with  a  view 
to  verifying  as  completely  as  possible  all  the  facts  concerning 
him — his  present  location,  his  financial  standing,  his  neigh- 
borhood reputation,  and  all  the  other  details  that  are  needed 
by  the  attorney  in  bringing  pressure  to  bear. 

The  credit-office  files,  it  they  have  been  well  kept,  will  in 
such  cases  supply  the  facts  without  a  great  deal  of  verifica- 
tion needed. 

198 


FORCING  COLLECTION  OF  DIFFICULT  ACCOUNTS 

The  House  Agency.  Collection  managers  whose  con- 
tact with  their  debtors  is  chiefly  through  the  mails  quite 
commonly  supplement  their  own  collection  efforts  through 
letters  written  on  regular  store  stationery,  with  a  brief 
new  series  of  letters  on  the  special  letter-head  of  a  collection 
agency  or  on  the  stationery  of  the  local  credit  men's  as- 
sociation, which  is  apparently  independent  of  the  concern 
to  which  the  account  is  owed,  but  which  is  really  a  part 
of  it. 

The  advantage  of  using  a  "house  agency"  of  this  kind  is 
that  this  new  series  of  letters  on  an  unfamiliar  letter-head 
will  often  bring  a  response  from  the  long-silent  delinquent, 
and  thus  pave  the  way  to  a  readjustment  of  the  account. 
This  means  an  actual  saving  in  fees  that  would  otherwise 
be  paid  to  the  agency  or  attorney,  and  at  the  same  time 
retains  control  of  the  account  for  continued  prompt  and 
tactful  handling  by  the  collection  man,  who  is  in  a  better 
position  to  salvage  the  debtor's  good-will  than  an  outsider 
would  be. 

The  series  of  letters  to  be  written  on  the  house-agency 
stationery  should  be  carefully  planned  to  suit  the  needs  of 
particular  cases.  Usually  three  letters,  the  last  one  a  final 
notice  before  threatening  legal  action,  will  suffice. 

Selecting  an  Attorney.  While  the  collection  of  accounts 
through  legal  proceedings  is  not  to  be  employed  until  it 
is  clearly  apparent  that  the  money  cannot  be  secured  in 
any  other  way,  the  fact  that  suit  can  be  brought  is  one  of 
the  most  effective  collection  measures  at  the  command  of 
the  collection  manager.  The  ordinary  debtor  has  but  slight 
knowledge  of  the  law.  He  knows  it  is  likely  to  be  costly 
and  troublesome  for  him. 

Because  there  is  a  certain  mystery  as  to  its  workings,  and 
because  he  knows  that  the  debt  is  justly  due,  the  actual 

threat  of  action  by  an  attorney  is  likely  to  be  effective  in 

199 


RETAIL    CREDITS    AND    COLLECTIONS 

forcing  him  to  pay.  So  great  is  his  dread  of  it  that  many 
times  the  mere  suggestion  of  a  lawsuit,  properly  Conveyed, 
is  enough  to  bring  about  a  settlement.  When  legal  action 
is  necessary  to  collect  an  account  an  attorney  must  be  em- 
ployed. But  in  a  great  many  cases,  because  of  this  whole- 
some dread  in  the  minds  of  the  delinquents  of  the  law's 
power,  the  attorney  may  be  employed  to  advantage  before 
suit  is  even  contemplated.  A  mere  letter  from  an  attorney 
to  the  debtor,  stating  that  the  account  has  been  placed  in 
his  hands  for  collection,  and  suggesting  that  it  will  be  ad- 
vantageous for  the  debtor  to  call  and  settle,  will  often  be 
sufficient  to  bring  him  to  the  attorney's  office,  and,  once 
there,  some  settlement  without  recourse  to  the  courts  should 
be  possible. 

In  most  localities  there  are  attorneys  who  specialize  on 
collection  of  commercial  accounts  and  who  for  that  reason 
are  well  equipped  to  give  vigorous  attention  to  accounts 
placed  in  their  hands.  Young  attorneys,  men  just  gradu- 
ated from  the  law-schools,  whose  legal  practices  are  still  to 
be  developed,  are  often  found  to  get  better  results  in  handling 
collections  than  older  men  of  greater  experience.  The 
younger  men  need  the  money  and  the  practice,  and  have  a 
name  to  make  for  themselves.  For  this  reason  they  will 
often  follow  collections  more  closely  than  is  usual  with  older 
law  firms,  which  may  prefer  to  devote  themselves  to  other 
•lines  of  legal  work. 

Whoever  the  attorney  may  be,  he  should  be  one  who  is 
personally  known  to  the  collection  man  to  be  honest  and 
to  possess  ability,  and  he  should  be  assured  a  fee  adequate 
for  his  services. 

It  seems  hardly  necessary  to  suggest  that  a  careless  or 
unscrupulous  attorney  is  not  one  to  whom  accounts  may  be 
safely  trusted  for  collection.  Such  men  make  but  little  effort 

to  win  the  case  when  it  is  brought  before  a  justice  or  in  a 

200 


FORCING  COLLECTION  OF  DIFFICULT  ACCOUNTS 

lower  court,  preferring  that  it  should  be  lost  there  for  the 
sake  of  prolonged  litigation  and  larger  fees  to  come  from  an 
appeal  to  a  higher  court.  Naturally  the  attorney  chosen 
should  not  be  a  relative  or  friend  of  the  debtor. 

Using  Attorneys  in  Other  Cities.  If  the  claims  are 
against  the  debtors  in  other  localities,  the  problem  of  select- 
ing the  attorney  to  properly  handle  them  is  more  compli- 
cated. The  creditor  usually  consults  one  of  the  numerous 
law  lists  or  directories  of  bonded  attorneys  published  by 
various  agencies  and  bonding  organizations,  of  which  there 
are  many  in  this  country.  He  then  forwards  the  claim 
under  the  guarantee  of  the  law-list  publisher,  who  practically 
guarantees  the  prompt  payment  of  all  money  collected  by 
the  attorney  in  his  list,  provided  he  is  informed  by  the  for- 
warder of  the  claim,  when  and  to  whom  the  claim  is  being 
sent. 

As  a  medium  between  the  creditor,  on  the  one  hand,  and 
the  attorney  in  the  debtor's  home  town,  on  the  other  hand, 
the  modern  collection  agency  has  come  to  fill  a  useful  place. 
Many  houses  who  have  a  number  of  such  cases  to  handle 
find  it  desirable  to  "forward"  them  through  one  central 
collection  agency  of  known  standing,  in  preference  to  send- 
ing them  to  local  attorneys  in  other  sections  of  the  country 
direct.  The  cost  to  the  creditor  is  the  same  in  either  case, 
for  it  is  usual  for  the  attorney  to  divide  his  fee  with  the 
forwarding  agency,  in  the  proportion  of  two-thirds  to  him- 
self and  one-third  to  the  agency  through  which  the  claim 
reached  him. 

Following  Up  Out-of-town  Attorneys.  In  most  cases 
there  is  a  distinct  advantage  to  the  creditor  in  the  use  of 
the  forwarder,  who  is  himself  equipped  to  take  over  the 
entire  responsibility  of  following  up  the  attorneys  to  whom 
he  has  forwarded  claims.  This  advantage  will  be  more  ap- 
parent when  it  is  understood  that  at  times  it  is  necessary  to 

201 


RETAIL    CREDITS    AND    COLLECTIONS 

forward  a  single  claim  to  as  many  as  a  dozen  different  at- 
torneys in  a  given  district  before  one  is  found  who  can  and 
does  show  results. 

If  the  creditor  is  relieved  from  the  work  of  following  up 
attorneys  to  whom  his  claims  have  been  forwarded — in  it- 
self a  job  that  equals  the  work  of  following  as  many  delin- 
quents— he  will  find  the  services  of  a  good  forwarder  well 
worth  while. 

The  Service  of  the  Forwarder.  Probably  the  one  advan- 
tage to  the  ordinary  creditor  of  using  a  forwarder's  service, 
over  referring  claims  to  attorneys  direct,  lies  in  the  fact 
that  the  forwarders  can  get  better  service  and  attention 
to  the  claims.  This  is  true  because  no  attorney  feels  that 
he  can  as  readily  afford  to  refuse  claims  or  offend  the  for- 
warder, who  may  have  a  large  number  of  claims  of  all  kinds 
to  send  him  later.  On  the  other  hand,  the  trial  attorney  who 
receives  a  claim  from  the  creditor  direct  has  no  special  com- 
punction about  refusing  to  handle  it  if  he  feels  so  disposed. 
Following  is  a  form  issued  by  the  forwarder  to  his  corre- 
spondent attorney  which  combines  an  acknowledgment  of  the 
claim. 

DEAR  SIR: 

We  inclose  for  collection  and  remittance,  to  our  order,  on  terms 
stated  below,  the  following  claim.  We  hereby  stipulate  that  the 
terms  shown  in  this  letter  shall  govern  your  charges.  Your  agree- 
ment to  such  terms  is  a  condition  precedent  to  any  performance 
on  your  part,  and  shall  be  evidenced  by  your  retention  of  this  claim. 

TERMS: 

10    %  on  first $100 

7    %  on  excess  up  to $500 

5    %  on  excess  up  to $1,000 

on  excess  over $1,000 

Minimum  fee,  $2.00 
202 


FORCING  COLLECTION  OF  DIFFICULT  ACCOUNTS 

IF  THESE  TERMS  ARE  NOT  SATISFACTORY,  RETURN  CLAIM  AT  ONCE. 

One-third  of  all  fees  must  be  included  in  accounting  to  us  for  the 
proceeds  of  this  collection. 

Claims  must  be  presented  at  once  and  receipt  acknowledged 
with  such  information  as  you  can  give. 

IF  CLAIM  IS  SETTLED  BEFORE  BEING  PRESENTED  AND  ACKNOWL- 
EDGED BY  YOU,  NO  COMMISSIONS  WILL  BE  PAID. 

Important: 

If  debtor  is  solvent  and  will  neither  pay  nor  secure  claim,  advise 
at  once  as  to  amount  of  costs  of  suit.  Incur  No  Costs  without  in- 
structions. 

If  debtor  is  insolvent,  obtain  best  compromise  proposition  and 
submit  to  us.  If  worthless,  return  claim  at  once  with  a  report. 

No  FEES  WILL  BE  ALLOWED  ON  CLAIMS  NOT  COLLECTED,  AND 
NO  FEES  OR  COMPENSATION  OTHER  THAN  ABOVE,  UNLESS  THERE 
IS  A  WRITTEN  AGREEMENT  FOR  SUCH  EXTRA  FEES  OR  COMPENSA- 
TION. 

NO  FEE  DUE  FROM  US  ON  ANY  ITEM  OF  BUSINESS  OTHER  THAN 
ABOVE  SHALL  BE  DEDUCTED  FROM  REMITTANCE  ON  THIS  CLAIM. 

Failure  to  acknowledge  receipt,  to  answer  letters,  or  to  follow 
special  instructions  will  constitute  a  breach  of  these  conditions,  and 
a  forfeiture  of  all  fees,  and  give  us  the  right  to  forward  a  duplicate 
of  this  claim  to  other  correspondents  without  notice. 

Interest  must  be  collected  on  all  accounts.  Use  telegraph  if 
necessary.  A  form  of  acknowledgment  or  receipt  of  the  claim 
follows. 

Forwarder. 

We  hereby  acknowledge  receipt  of  claim 


consisting  of  Draft  $ Account  $ 

Note  $ the  proceeds  of  which  we  agree  to  remit, 

less  two-thirds  of  the  fees.  Said  fees  shall  be  computed  on  the  terms 
stated  below,  unless  there  is  a  written  agreement  otherwise.  If 
claim  is  paid  before  we  present  it,  no  commission  is  to  be  charged 
by  us. 

203 


RETAIL    CREDITS    AND    COLLECTIONS 

TERMS: 

10    %  on  first $100 

7    %  on  excess  up  to $500 

5    %  on  excess  up  to $1,000 

2^%  on  excess  over $1,000 

Minimum  fee,  $2. 

Actual  disbursements  will  be  paid  when  claim  is  reduced  to 
judgment.  Commission  will  be  paid  only  when  collection  is  made. 

REPORT: 

(Give  full  particulars  as  to  debtors'  responsibility,  and  measures 
necessary  to  be  taken  to  make  collection.) 

Yours, 

Attorney. 

Fees.  When  an  attorney  is  to  be  employed  it  is  always 
well  to  have  a  distinct  understanding  as  to  his  charges  for 
services.  If  the  attorney  is  selected  from  one  of  the  law 
lists,  the  fees  are  usually  fixed  and  understood.  In  many 
cases  local  bar  associations  fix  the  rates  of  member  attorneys. 
From  10  to  15  per  cent,  is  the  usual  charge  in  small  accounts 
collected  without  suit,  this  fee  decreasing  as  the  amount 
involved  increases.  On  small  accounts  there  is  usually  a 
minimum  fee  below  which  the  attorney  will  not  go,  as,  for 
example,  two  or  three  dollars.  Where  suit  is  necessary,  at- 
torneys frequently  charge  50  per  cent,  of  the  amount  col- 
lected. In  such  cases  the  attorney  usually  advances  the 
court  costs. 

The  Question  of  Costs  and  Disbursements.  Where  the 
creditor  advances  the  court  costs  the  amount  varies  or- 
dinarily from  five  to  ten  or  twelve  dollars.  The  amount 
required,  however,  is  bound  to  vary,  depending  on  the  state 
in  which  the  action  is  brought  and  the  amount  of  the  claim. 
In  the  state  of  Pennsylvania,  for  example,  there  are  four 
different  courts  in  which  actions  may  be  started,  depending 

on  the  amount  involved.    Each  calls  for  a  different  scale  of 

204 


FORCING  COLLECTION  OF  DIFFICULT  ACCOUNTS 

costs.    In  New  York  state  the  costs  advanced  are  usually 
$7.50,  which  cover  cost  of  serving  summons,  calendar  fee, 
sheriff's  fee,  and  the  like. 
Here  are  the  items  of  costs  for  suit  in  the  state  of  Utah. 

Service  of  summons $1  20 

Filing  of  complaint 2  00 

Trial  fee 2  00 

Execution 25 

Service  of  execution 1  20 

Garnishee  f  ee . .                                      2  00 


Total $865 

Attorneys'  Services,  Constructive  and  Destructive.  The 
results  shown  from  collection  efforts  depend  in  no  small 
degree  upon  making  proper  use  of  the  attorneys  to  whom 
claims  are  intrusted.  The  commercial  attorney  endeavors 
to  keep  in  close  touch  with  business  conditions  in  his  town 
or  vicinity,  especially  with  matters  touching  the  financial 
condition  and  reputation  of  local  residents.  For  that  reason 
his  opinion  with  regard  to  the  standing  of  a  debtor  is  often 
worth  considering  when  it  comes  to  the  selection  of  the  proper 
collection  procedure  to  take. 

Taking  Collection  Advice  from  the  Attorney.  The  far- 
sighted  creditor  is  the  one  who  makes  use  of  the  local  at- 
torney's knowledge  and  advice  in  regard  to  a  local  claim, 
with  the  idea  that  the  prospect  of  actually  bringing  him  into 
court  is  usually  a  more  effective  means  of  securing  an  ad- 
justment or  a  settlement  of  the  claim  than  the  actual  execu- 
tion of  the  threat.  He  makes  capital  of  this  fact,  and  the 
creditor  will  require  a  full  report  of  the  debtor's  financial 
condition  and  present  circumstances,  with  an  opinion  as  to 
the  prospect  of  an  early  collection.  He  may  know  that, 

owing  to  the  debtor's  condition,  there  is  little  likelihood  that 

205 


RETAIL    CREDITS    AND    COLLECTIONS 

the  claim  will  be  paid  in  the  immediate  future  and  that  the 
bringing  of  suit  would  be  of  no  avail,  but  that  there  is  good 
hope  of  collecting  the  money  in  small  instalments  spread 
out  over  a  number  of  months. 

In  the  absence  of  such  a  preliminary  report,  the  attorney's 
advice  that  the  suit  be  brought  at  once  will  not  be  acceptable 
to  the  wise  creditor  who  realizes  that  such  action  is  often 
expensive  and  almost  certainly  involves  the  permanent  loss 
of  the  debtor's  trade. 

One  collection  man,  who  has  the  handling  of  thousands 
of  small  mail-order  accounts  against  individuals  in  vari- 
ous parts  of  the  country,  has  made  it  a  rule  never  to  au- 
thorize suit  until  a  full  report  shows  that  such  action  is 
absolutely  necessary.  He  has  been  able,  on  the  other  hand, 
to  bring  about  the  adjustment  of  as  many  as  seventy  out  of 
one  hundred  claims,  securing  in  many  of  them  payment  in 
full,  without  actually  bringing  action  or  advancing  a  cent 
for  costs.  In  a  large  percentage  of  the  cases  so  adjusted  he 
has  been  able  by  careful  instructions  to  his  attorneys,  and 
close  supervision  of  their  work,  to  retain  the  good-will  of 
his  debtors. 

Contrasted  with  the  opposite  policy  of  bringing  action 
indiscriminately  and  without  any  effort  to  "resell"  his  cus- 
tomers on  their  need  for  fulfilling  their  obligations,  he  has 
salvaged  for  his  house  many  times  over  the  amount  of  his 
salary  each  year.  His  method  of  handling  collections  thus 
"constructively"  through  attorneys  is  much  to  be  preferred 
to  the  ordinary  "destructive"  method. 

Co-operating  With  the  Attorney.  When  an  account  is 
placed  in  the  hands  of  an  attorney  he  should  be  given  a 
full  and  accurate  statement  of  the  facts  in  the  case.  At 
the  same  time  any  instructions  necessary  should  be  given 
him  so  clearly  and  specifically  that  there  will  be  no  possi- 
bility of  a  mistake.  If  suit  is  to  be  delayed  or  not  to  be 

206 


FORCING  COLLECTION  OF  DIFFICULT  ACCOUNTS 

brought  at  all,  or  if  a  compromise  will  be  accepted,  or  if 
there  is  any  other  information  that  may  help  the  attorney 
in  his  dealing  with  the  debtor,  all  should  be  plainly  stated. 
After  that,  any  new  information  bearing  on  the  account 
which  comes  to  the  collection  man  should  at  once  be  sent 
to  the  attorney,  so  that  he  may  have  all  the  facts  to  work 
with. 

Even  in  cases  where  the  debtor,  on  receiving  a  letter  from 
the  attorney  regarding  the  account,  hurries  to  make  his  pay- 
ment direct  to  the  store,  thinking  thus  to  forestall  further 
action,  the  acceptance  of  such  a  payment  should  await  the 
attorney's  approval,  because  in  some  cases  the  recovery  of 
sums  advanced  to  cover  costs,  and  which  are  justly  charged 
to  the  debtor,  cannot  be  recovered  if  such  a  payment  is 
accepted  on  account  direct. 

The  collection  man  may  feel  tempted,  in  the  cases  where 
payments  are  offered  direct  in  this  way  by  the  threatened 
debtor,  to  accept  them  and  to  hold  back  or  pay  reluctantly 
the  stipulated  commission  to  the  attorney. 

Inasmuch  as  the  payment  was  secured,  however,  as  a 
direct  result  of  the  attorney's  effort,  he  must  in  all  fairness 
be  protected  in  the  payment  of  his  commission  as  scrupu- 
lously in  such  cases  as  if  the  attorney  had  actually  received 
the  money  and  turned  it  over  to  the  store. 

It  should  be  remembered  that  the  relationship  between 
the  attorney  and  the  collection  department  is  one  of  con- 
fidence, and  if  it  is  to  be  effective,  then  there  must  be  per- 
fect co-operation  and  fair  dealing  on  both  sides. 


XV 

LEGAL  AIDS  TO  COLLECTION 

Knowing  Collection  Law.  Assuming  that  it  appears 
necessary  to  resort  to  legal  process  to  force  the  payment  of 
a  just  debt,  after  the  collector  has  tried  every  possible  means 
to  friendly  adjustment,  he  will  first  ask  himself,  "If  I  do 
get  a  judgment,  can  I  collect  it?"  Then  he  will  remember 
that  to  get  his  judgment  and  to  collect  it  he  will  need  "a 
good  cause,  a  good  purse,  a  good  counsel,  a  good  judge,  a 
good  jury,  and  good  luck." 

When  a  delinquent  has  property  in  his  own  name  sub- 
ject to  execution,  that  is  of  a  nature  not  exempted  by  law, 
and  in  amount  over  and  above  that  fixed  by  statute  under 
which  a  man's  earnings  or  property  cannot  be  touched, 
the  collection  of  an  undisputed  account  by  suit  is  a  simple 
matter.  Even  when  the  debtor  has  no  property,  or  where 
property  is  exempt,  it  is  frequently  advisable  to  bring  suit. 
In  such  cases  the  debtor  will  sometimes  pay  his  debt  to 
avoid  having  a  judgment  entered  against  him.  In  other 
cases  he  may  be  ignorant  of  the  law  and  afraid  of  it,  and  if 
he  finds  out  that  suit  has  been  brought  against  him  will  make 
some  settlement. 

Sometimes,  having  begun  an  action,  it  is  well  to  have  it 
continued  from  time  to  time  until  actual  payment  is  made, 
thus  insuring  against  the  losses  from  false  promises  of  settle- 
ment made  by  an  unscrupulous  debtor  to  avoid  action.  A 

208 


LEGAL    AIDS    TO    COLLECTION 

discontinuance  of  the  action  may  be  effected  by  the  plaintiff 
or  creditor  at  any  time  if  he  does  not  think  it  worth  carrying 
further.  His  loss  in  such  an  event  will  be  only  the  actual 
cost  of  the  proceedings  so  far. 

It  is  well  to  bring  all  actions  in  the  same  district  before 
the  same  court,  if  possible,  with  the  same  justice  sitting, 
to  insure  more  friendly  treatment  and  smaller  court  costs 
than  might  otherwise  be  exacted. 

Turning  Accounts  into  Judgments.  Every  state  in  the 
Union  has  fixed  a  "  statute  of  limitations, "  defining  the  limit 
of  time  beyond  which  a  debt  cannot  be  collected  by  legal 
action.  A  debt  is  said  to  be  " outlawed"  when  it  is  allowed 
to  stand  for  a  time  beyond  the  limit  set,  and  unless  legal 
action  is  brought  within  the  period,  or  unless  the  account 
is  kept  alive  by  a  payment  or  some  other  acknowledgment 
by  the  debtor. 

The  limits  defined  vary  for  different  states  and  with  the 
nature  of  the  debt.  An  open  account  expires  by  limitation 
in  from  two  to  eight  years.  For  notes,  the  period  is  usually 
longer.  As  a  rule,  the  statute  applies  from  the  date  of  the 
last  payment,  if  the  full  amount  of  the  claim  is  due  at  that 
time.  If,  therefore,  payments,  even  small  ones,  can  be  se- 
cured from  time  to  time,  there  is  no  danger  of  a  claim  ex- 
piring by  limitation.  If,  however,  no  payments  or  written 
recognition  of  the  debt  can  be  secured,  suit  should  be  brought 
before  the  time  of  expiration.  When  suit  is  brought  and 
judgment  obtained,  this  judgment  has  a  life  of  its  own,  also 
fixed  by  statute  and  varying  in  the  different  states,  and  the 
claim  is  secure  for  this  period. 

Exemptions.  Just  as  the  different  states  have  fixed 
various  limitations  on  the  length  of  time  within  which  a 
creditor  may  collect  his  debt,  so  the  laws  of  the  states  have 
fixed  upon  the  amount  and  the  kind  of  property  a  debtor 

may  retain  regardless  of  what  he  may  owe. 

209 


RETAIL    CREDITS    AND    COLLECTIONS 

In  California,  for  example,  a  homestead  of  $5,000  value 
above  mortgage,  if  filed  by  a  married  man  or  wife,  is  exempt. 
If  filed  by  single  person,  a  homstead  of  $1,000  value  above 
mortgage  is  exempt.  Household  furnishings  of  the  home, 
including  sewing-machine,  piano,  and  the  like,  may  not  be 
levied  upon,  as  are  all  tools  and  machinery  necessary  to 
carry  on  the  trade  of  an  artisan.  Farming  implements  not 
exceeding  $1,000  in  value,  two  mules  and  harnesses,  wagon, 
coupe,  three  cows,  four  pigs,  one  shot-gun,  one  rifle,  and 
seventy-five  dollars7  worth  of  poultry ;  all  earnings  of  a  mar- 
ried man  for  services  rendered  within  thirty  days  are  exempt, 
except  for  purchases  of  necessities  of  life,  when  one-half  these 
earnings  may  be  levied  upon.  None  of  the  articles  mentioned, 
however,  is  exempt  from  levy  in  an  action  brought  for  their 
purchase  price. 

The  following  is  a  list  of  the  homestead  and  other  exemp- 
tions under  personality  and  wages: 


STATE 

PERSONALITY 

WAGES 

Alabama  
Arizona 

$1,000 
$500 

$25  per  month 
Earnings  30  days  pre- 

Arkansas   
California.  .  . 

$500  in  certain  articles 
Specified  articles  not  ex- 

ceding  levy 
For  60  days,  but  not  in 
addition  to  personality 
Earnings    30  days  pre- 

Colorado. .  .  . 

ceeding  $1,000' 
Specified  articles 

ceding  levy 
Earnings  for  preceding 

Connecticut  

Specified  articles 

30  days,  not  over  $30 
$25  in  wages  due 

Delaware  

Each  county  has  a  special 

District  of  Columbia 
Florida 

law 
Specified   articles    to 
amount  not  exceeding 
$1,000 
$1,000 

Two  months'  wages,  not 
exceeding    $100    per 
month 
All  wages  due 

Georgia 

Specified  articles 

All  wages  due  for  labor 

Idaho   . 

Specified  articles  to  value 

Wages  for  30  days 

Illinois  

of  $1,000 
$400 

$15  per  week 

Indiana.  . 

One  month's  wages 

210 


LEGAL    AIDS    TO    COLLECTION 


STATE 

PERSONALITY 

WAGES 

Indian  Territory  .  .  . 
Iowa 

$500,   and  wages  under 
$500 

Specified  articles,  and  also 

Wages  for  60  days,  not 
over  $500  when  added 
to  personality 
Wages  for  90  days 

Kansas 

household  goods  not  ex- 
ceeding $200  in  value 
Specified  articles 

Three  months*  wages 

Kentucky   

Specified  articles 

Wages  to  $50 

Louisiana  

Specified  articles 

All  wages 

Maine  

Specified  articles 

One  month's  wages  not 

Maryland  

Specified  articles  to  value 

exceeding  $20 
Wages    to    amount    of 

Massachusetts  
Michigan  

of  $100 
Specified  articles 

$250  in  goods  for  each 

$100 
As  against  debt  for  nec- 
essaries,   $10;    other 
debts,  $20 
To  amount  to  $25 

Minnesota 

partner.     Specified  ar- 
ticles 
Specified  articles 

$25  if  earned  in  30  days 

Mississippi  .  . 

In  country,  specified  ar- 

preceding levy 
Head  of  family    $100' 

Missouri.  . 

ticles;  in  town,  $250  in 
value 
$300,  besides  wearing  ap- 

other persons,  $20 

Montana.  .  . 

parel,    household    and 
kitchen  furniture 
Specified  articles 

Thirty  days'  wages 

Nebraska 

Family  supplies  for  six 

Sixty  days'  wages 

Nevada  

months     and     certain 
enumerated  articles 
Specified  articles 

Back  wages  not  exceed- 

New  Hampshire  .  .  . 
New  Jersey  

New  Mexico.  .  . 

Specified  articles 
$200  in  merchandise  and 
wearing  apparel 
Specified  articles 

ing  $50 
$20,  exceptfor  necessities 
All  wages 

All  wages 

New  York  .... 

Specified  articles  and  $250 

Sixty  days'  wages 

North  Carolina.  .  .  . 
North  Dakota  

Ohio  

additional 
$500  in  personality 
Not  to  exceed  $1,000  f  al- 
so $40  to  each  member 
of  the  family  exempt, 
and  $70  for  horse  feed 
Specified  articles 

Sixty  days'  wages 
Three    months'    wages 

where  debt  is  for  nec- 
essaries; 10  per  cent. 
of  personal   earnings 
not  exempt 

15 


211 


RETAIL    CREDITS    AND    COLLECTIONS 


STATE 

PERSONALITY 

WAGES 

Oklahoma  
Oregon  
Pennsylvania  

Rhode  Island  

South  Carolina.  .  .  . 
South  Dakota  

Tennessee  

Specified  articles 
Specified  articles 
Specified  articles 

Specified  articles  to  value 
of  $300 
To  value  $500 
$750  on  debts  contracted 
since  July  1,1890;  $300 
to  single  persons;  other- 
wise, $1,500  to  all  per- 
sons 
Specified  articles 

Ninety  days'  wageo 
Thirty  days'  wages 
All,    except   as   against 
judgment  for  wages 

Sixty  days'  wages 
Sixty    days'    wages,    if 
necessary  to  support 
of  the  family 

$30 

Texas  

Specified  articles 

All  wages 

Utah 

No  specified  amount  ex- 

$30 a  month  for  married 

Vermont 

empt 
Specified  articles 

man 

Virginia   . 

Real  or  personal  property 

exceeding    $50    per 
month 
Not  pyp.oedinp]  $50  per 

Washington  .  .  . 

or  both,  to  $2,000,  be- 
sides specified  articles 
Specified  articles 

month 
\Vages    to    amount    of 

West  Virginia  
Wisconsin  

To  value  of  $200 
Specified     articles,     and 

$100 
\Vages  for  3  months  not 

Wyoming  

also  household  goods, 
not  exceeding  $200  in 
value  ;  also  specified  ag- 
ricultural   implements 
not  exceeding  $200 
Specified  articles  to  value 

exceeding    $60  '  per 
month 

^^ages    not     exceeding 

of  $800 

$100  in  value 

Garnishee.  Garnisheeing  is  the  legal  process  by  which 
the  creditor  may  divert  the  payment  of  a  debtor's  salary 
or  wage,  in  whole  or  in  part,  from  the  debtor  to  apply  on 
the  liquidating  of  the  debt. 

A  part  of  the  employee's  salary,  however,  is  usually 
exempt,  the  amount  varying  under  the  laws  of  different 
states.  As  may  be  surmised,  the  garnisheeing  proceed- 
ing is  a  very  effective  means  of  forcing  a  debtor  to  pay. 

No  small   part  of  its  effectiveness  lies  in  the  fact  that 

212 


LEGAL   AIDS   TO    COLLECTION 

it  is  collectable  by  order  of  the  court  from  the  debtor's 
employer. 

United  States  government  employees  are  exempt  from 
garnishee.  This  faot,  taken  into  account  since  the  fed- 
eral izing  of  railroads  in  the  country  under  government 
control,  has  brought  much  uncertainty  into  the  situation 
affecting  collection  of  accounts  from  railway  employees. 
While  Director-General  McAdoo  has  ruled  that  all  railway 
employees  are  exempt,  there  is  a  strong  sentiment  among 
business  men  of  the  country  that  the  matter  must  be  de- 
cided in  court  to  be  final.  They  contend  that  if  railroad 
employees  are  exempted  from  garnishee,  then  telephone, 
telegraph,  and  ship-yard  workers  will  be  entitled  to  the 
same  consideration. 

Supplementary  Proceedings.  In  cases  where  an  action 
is  brought  and  the  creditor  has  been  given  judgment  against 
a  debtor,  the  job  of  actually  executing  the  court's  order  to 
seize  property  and  sell  it  for  payment  falls  to  the  court 
officer  or  sheriff.  Where  such  an  "execution"  is  returned 
unsatisfied,  because  no  property  subject  to  levy  can  be 
located,  it  is  still  possible  for  the  creditor,  by  procuring  an 
order  from  the  district  court,  to  force  the  appearance  of 
the  debtor  before  the  judge  or  referee  to  answer  under  oath 
questions  put  to  him  by  the  creditor's  attorney  regarding 
his  ownership  of  property.  Disobedience  of  orders  made  in 
these  proceedings  may  be  punished  as  contempt  of  court. 
The  debtor  must  answer  questions  put  to  him. 

Attachments.  Another  means  for  preventing  a  debtor 
from  removing  his  property  from  the  state  or  disposing  of 
it  after  suit  has  been  instituted  for  recovery  of  a  debt  is 
the  "attachment." 

The  "writ  of  attachment"  enables  a  creditor  to  have  the 
property  of  a  debtor  seized  and  held  for  the  payment  of  a 

debt  on  which  suit  has  been  or  is  about  to  be  brought.    The 

213 


RETAIL  CREDITS  AND  COLLECTIONS 

advantage  of  issuing  an  attachment  is  apparent  to  the  cred- 
itor who  has  had  the  experience  of  suing  a  debtor  who  ap- 
parently had  assets  at  the  time  the  suit  was  begun,  but  whose 
assets  had  disappeared  and  could  not  be  traced  after  the 
judgment  was  obtained. 

Replevin.  With  goods  sold  on  the  deferred-payment 
plan,  like  victrolas,  pianos,  sewing-machines,  or  the  like, 
the  seller  usually  retains  title  to  the  property  until  full 
payment  is  received.  In  cases  where,  because  of  failure  to 
keep  up  payments,  it  becomes  necessary  for  the  creditor 
to  repossess  the  property,  the  means  for  doing  so  is  by  a 
replevin  suit.  This  suit  is  for  immediate  recovery  and  the 
seller  is  allowed,  by  giving  a  bond,  to  take  the  goods  at 
once  and  hold  them  until  the  case  comes  up  for  trial.  Many 
debtors,  when  goods  are  thus  taken,  do  not  make  any  further 
effort  to  retain  or  regain  them,  thus  leaving  the  creditor 
in  full  possession.  If  the  case  comes  to  trial,  the  seller  can 
show  then  that  the  terms  of  the  contract  were  violated  by 
the  debtor's  failure  to  pay  as  agreed,  and  in  most  states  this 
will  defeat  the  debtor. 

Extensions — When  to  Grant  Them.  Sometimes  a  debtor 
finds  himself  pressed  for  immediate  funds  because  of  cir- 
cumstances beyond  his  control.  When  his  condition  is 
made  known,  with  the  evident  intention  of  doing  his  best 
to  overcome  the  condition,  it  is  part  of  the  collector's  job 
to  arrange  for  the  best  means  of  carrying  the  burden  and 
at  the  same  time  to  save  the  account  for  the  house.  The 
collection  man  by  his  method  of  handling  the  situation  will 
invite  the  frankest  kind  of  explanation  by  the  debtor  of 
his  predicament,  so  that  he  may  first  of  all  decide  whether 
an  extension  is  needed,  and,  if  so,  to  arrange  one  the  terms 
of  which  will  be  definitely  understood. 

From  purely  selfish  motives,  the  collection  man  should 

give  serious  consideration  to  such  a  request  for  time,  be- 

214 


LEGAL    AIDS    TO    COLLECTION 

cause  it  will  be,  in  many  instances,  the  only  means  of  pre- 
venting trouble  and  loss  to  both  debtor  and  creditor. 

Among  the  questions  for  the  collector  to  answer  when  a 
customer  seeks  an  extension  are: 

1.  Is  he  honest?     Here  his  character  is  all-important. 
If  he  is  not  to  be  trusted  to  keep  his  agreement,  then  an 
extension  would  simply  give  him  an  additional  opportunity 
to  inflict  a  loss. 

2.  Has  the  debtor  strength  to  continue  in  his  present 
surroundings    and    eventually  work    his  way  out    of  his 
difficulties? 

Will  the  assistance  given  him  enable  him  to  make 
good?  Here  the  capacity  of  the  debtor  is  the  deter- 
mining factor. 

When  a  debtor  asks  an  extension,  he  exposes  and  impairs 
his  credit  in  all  markets.  This  means  that  those  creditors 
who  grant  the  extension  are  obligated  in  a  measure  to  con- 
tinue selling  him. 

3.  What  are  the  reasons  for  the  debtor's  embarrassment, 
and  the  prospects  of  improvement  of  his  condition? 

L£gal___A§I>e£ts.  Many  times  the  extension  is  accom- 
plished by  the  debtor's  giving  the  creditor  a  note.  In 
such  cases  the  giving  and  accepting  of  a  note  in  place 
of  the  old  account  is  in  effect  the  substitution  of  a 
new  contract  for  an  old  one,  and  is  therefore  binding 
on  both.  When  the  debtor  gives  security  or  obtains  a 
guarantor  in  consideration  for  extension  of  time  granted, 
the  agreement  is  supported  by  sufficient  consideration  and 
is  therefore  binding. 

When  the  question  arises,  then,  in  the  minds  of  either 
creditor  or  debtor,  whether  an  agreement  for  an  extension 
of  time  is  binding  on  the  creditor,  it  must  be  remembered 
that  every  contract,  to  be  valid,  must  be  supported  by  some 

consideration.    Obviously,  an  agreement  by  one  creditor  to 

215 


RETAIL    CREDITS    AND    COLLECTIONS 

give  a  debtor  an  extension  of  time  without  consideration 
is  not  binding  on  the  creditor.  Where,  however,  several 
creditors  agree  among  themselves  and  with  the  debtor,  that, 
in  consideration  of  each  creditor's  forbearance,  each  of  the 
other  creditors  will  agree  to  an  extension,  there  is  sufficient 
consideration  to  support  the  promise  of  each  creditor;  and 
no  one  creditor,  at  least  without  the  consent  of  all  others, 
would  have  the  right  to  demand  payment  before  the  ex- 
tended time  had  elapsed. 

Under  certain  conditions  it  would  be  unwise  for  creditors 
to  grant  an  extension.  This  is  obviously  true,  for  example, 
where  a  debtor's  condition  shows  no  real  likelihood  that 
he  will  be  able  to  get  back  on  his  feet  again.  Under  such 
conditions  an  extension  would  hardly  be  advisable.  The 
debtor's  condition  would  not  be  helped  or  improved  by  it. 
More  heroic  measures  are  necessary. 

The  Composition  Settlement.  One  remedy  for  such  a 
condition  is  the  common  law  or  composition  settlement. 
This  is  an  agreement  between  the  debtor  and  several  of 
his  creditors,  not  necessarily  all  of  them,  by  which  each 
agrees  to  release  the  debtor  from  the  entire  debt  on  receiving 
a  partial  payment  from  the  debtor. 

The  composition  settlement  is  usually  brought  about  on 
the  initiative  of  the  debtor,  who  submits  an  offer  to  his 
creditors,  offering  to  pay  a  certain  percentage  of  their 
claims.  The  proposal  may  be  made  directly  by  the  debtor, 
or  through  his  attorney,  to  the  creditors  individually  or  at 
a  meeting  of  creditors  called  for  the  purpose. 

When  creditors  are  numerous,  it  is  difficult,  usually,  to 
arrange  such  a  settlement — because  there  are  likely  to  be 
one  or  more  among  them  who  insist  upon  full  payment. 
When  creditors  are  few,  however,  and  inclined  to  be  friendly 
toward  the  debtor,  not  many  obstacles  will  be  met  in  bring- 
ing about  an  equitable  settlement. 

216 


LEGAL    AIDS    TO    COLLECTION 

Who  May  Become  Bankrupt.  The  theory  on  which 
bankruptcy  laws  rest  is  that  so  long  as  a  man  is  solvent  he 
is  doing  business  or  living  on  his  own  money,  and  may  do 
with  it  as  he  pleases,  but  the  moment  he  becomes  insolvent 
he  ceases  to  be  doing  business  on  his  own  money — he  has 
spent  his  own — and  is  beginning  to  trade  on  his  creditors' 
money. 

It  is  the  object  of  the  Federal  bankruptcy  laws  to  protect 
an  insolvent  debtor's  estate  from  seizure  by  any  one  or  more 
creditors  to  the  exclusion  of  others,  and  to  prevent  the  in- 
solvent debtor  in  the  distribution  of  his  assets  or  payments 
of  his  debts  from  giving  one  creditor  preference  over  another. 

Voluntary  and  Involuntary  Bankruptcy.  This  is  open 
to  all  individuals,  firms,  and  with  some  exceptions  to  cor- 
porations. No  special  amount  of  indebtedness  is  required. 
A  person  owning  one  dollar  or  several  millions  may  file  a 
petition  in  voluntary  bankruptcy.  Any  insolvent  person, 
except  "wage-earners"  whose  compensation  is  less  than 
$1,500  a  year,  or  "farmers,"  or  "tillers  of  the  soil"  owning 
$1,000  or  more,  and  committing  an  act  of  bankruptcy,  may 
be  put  into  involuntary  bankruptcy.  Before  a  court  can 
adjudicate  an  insolvent  debtor  bankrupt  without  his  own 
consent,  and  take  charge  of  his  property  for  the  protection 
of  all  creditors,  the  debtor  must  have  committed  one  of  the 
following  five  acts: 

1.  Removed  or  concealed  or  conveyed  a  part  of  his  property 
with  intent  to  defraud  his  creditors. 

2.  Transferred  a  part  of  his  property  to  one  or  more  of 
his  creditors  with  the  intention  of  showing  preference  over 
other  creditors. 

3.  Permitted  a  creditor  to  obtain  a  preference  through 
legal  proceeding  and  disposition  of  property  affected. 

4.  Made  a  general  assignment  for  the  benefit  of  his  cred- 
itors. 

217 


RETAIL    CREDITS    AND    COLLECTIONS 

5.  Admitted  in  writing  his  inability  to  pay  his  debts  and 
his  willingness  to  be  adjudged  a  bankrupt  on  that  ground. 

Sometimes,  in  order  to  create  one  of  these  acts  of  bank- 
ruptcy, one  creditor,  with  the  approval  of  others  who  are 
anxious  to  have  the  debtor  judged  a  bankrupt,  will  bring 
suit  for  a  claim,  obtain  judgment,  and  levy  execution 
against  the  debtor's  property.  Thus  a  third  act  of  bank- 
ruptcy will  be  committed  and  the  creditors  may  file  their 
petition. 

Proof  and  Allowance  of  Claims.  Before  a  creditor  may 
take  part  in  the  election  of  a  trustee,  or  in  the  distribution 
of  the  assets  of  a  bankrupt  estate,  he  must  file  a  proof  of 
claim,  and  the  claim  must  be  allowed  by  the  referee  or 
court. 

A  claim  is  proved  by  filing  a  claim  under  oath,  in  writing, 
by  a  creditor  setting  forth  the  claim,  the  consideration,  and 
what  payments,  if  any,  have  been  made,  and  that  the  sum 
claimed  is  justly  owing  from  the  bankrupt  to  the  creditor. 

The  Credit-granter  and  the  Bankruptcy  Laws.  While 
the  Federal  act  is  open  to  improvement,  and  almost  no 
convention  of  credit  men  is  complete  without  a  statement 
of  the  changes  needed  in  it,  it  has  exerted  an  immeasurable 
good  influence  on  business.  A  return  to  the  old  chaotic  con- 
ditions which  existed  under  various  unrelated  state  acts 
before  the  Federal  act  was  passed,  would  be  an  unmixed 
evil. 

Only  through  the  retention  of  the  Federal  act  can  the 
present  highly  developed  system  of  free  interchange  of 
credit  information  and  the  resulting  confidence  among  credit 
men  continue.  The  procedure  may  from  time  to  time  be 
simplified  so  as  to  reduce  the  expense  of  bankruptcy  ad- 
ministration and  to  expedite  it.  This  may  best  be  done,  how- 
ever, by  suitable  amendments  to  the  act  rather  than  by  its 

repeal. 

218 


LEGAL    AIDS    TO    COLLECTION 

Changes  in  the  Law  Sought  by  Retailers.  Retailers  of 
the  country,  through  the  Retail  Credit  Men's  National 
Association,  have  been  working  for  certain  changes  in  the 
present  Federal  Bankruptcy  Act  which  they  believe  would 
assure  them  better  protection  than  is  now  possible  against 
debtors  who  are  dishonestly  inclined. 

They  are  working  naturally  toward  the  elimination  of  the 
crook,  or  at  least  to  make  it  more  difficult  for  him  to  hide 
behind  the  present  law  and  to  get  his  discharge  from  bank- 
ruptcy later. 

The  national  act  as  it  stands  now  is,  they  feel,  en- 
tirely in  favor  of  the  debtor,  not  the  creditor.  It  is  an  invi- 
tation to  the  dishonestly  inclined  to  cheat  his  creditors.  They 
believe  that  protection  under  the  law  should  be  available 
only  to  persons  engaged  in  business,  and  should  permit  dis- 
charge from  business  obligations  only  as  distinct  and  apart 
from  personal  obligations. 

They  maintain  that  a  customer  should  not  be  permitted 
to  acquire  expensive  habits  and  satisfy  them  at  the  expense 
of  creditors.  Such  things  as  liability  for  clothes,  rent  of 
house  or  apartment,  and  other  necessary  and  reasonable 
living  expenses,  should  not  be  dischargeable  when  the  debtor 
goes  into  bankruptcy. 

Legal  Action  Through  Credit  Bureaus.  In  communities 
where  the  retail  credit  men  have  organized  local  bureaus, 
it  is  not  unusual  for  them  to  provide  a  common  medium 
through  which  the  disagreeable  work  of  initiating  legal 
action  for  debts  owing  to  members  in  the  bureau's  collection 
department  may  be  undertaken.  In  such  cases,  the  action 
which  might  not  be  brought  by  an  individual  merchant, 
because  of  his  wish  to  avoid  the  unpleasantness,  may  be 
undertaken  independently  and  impersonally  for  him  and 
for  others  of  the  local  association's  members,  thus  avoiding 

much  of  the  unfavorable  publicity  which  might  otherwise 

219 


RETAIL  CREDITS  AND  COLLECTIONS 

result.  The  bureau's  secretary,  who  is  usually  intrusted 
with  legal  collection  work,  has  the  opportunity  of  combining 
the  claims  of  all  bureau  members  against  the  debtor,  thus 
enabling  him  to  bring  the  action  for  an  amount  large  enough 
to  qualify  it  for  trial  in  a  higher  court,  if  necessary,  than  would 
be  possible  if  an  individual  merchant  were  to  undertake  the 
task  alone  in  a  comparatively  similar  manner. 


XVI 

THE  CREDIT  MAN  AND  THE  BANK 

Where  the  Credit  Man  Meets  the  Banker.  While  the 
store's  financial  policy  may  not  be  administered  by  the  same 
man  who  is  responsible  for  its  credit  policy,  these  two  func- 
tions of  the  store's  management  are  closely  interrelated. 
The  credit  man  is  opening  accounts  which  will  mean  money 
payable  to  the  store.  As  collection  man  he  deals  with  money 
due  to  the  store  for  goods  already  bought  by  the  store  and — 
possibly  paid  for.  The  man  who  draws  checks  on  the  store's 
account  at  the  bank  to  pay  its  bills,  or  who  arranges  to 
borrow  from  the  bank  in  order  that  he  may  do  so,  is  count- 
ing on  the  fulfilment  of  promises  made  to  the  credit  man. 
There  is,  therefore,  really  a  place  in  this  discussion  of  the 
retail  credit  man's  work  for  a  brief  outline  of  his  relationship 
with  the  banker. 

The  Retailer  and  the  Trade  Acceptance.  Considerable 
attention  was  given  to  the  subject  of  "trade  acceptances" 
for  use  between  retailer  and  consumer  in  the  sessions  of  the 
Convention  of  Retail  Credit  Men  in  Boston  during  August, 
1918.  The  discussion  of  the  advantages  and  disadvantages 
of  a  general  use  of  the  acceptance  brought  out  many  in- 
teresting points  for  the  consideration  of  all  retailers  which 
may  properly  be  mentioned  here.  Just  at  this  time,  when 
business  is  thrown  out  of  its  normal  stride  by  the  world 

war  more  than  ever  before,  the  economic  well-being  of  the 

221 


RETAIL    CREDITS    AND    COLLECTIONS 

community  and  the  country  at  large  depends  upon  the 
soundness  with  which  retail  credits  are  extended  by  mer- 
chants to  their  customers  over  the  country.  In  periods  of 
great  prosperity  local  credits  have  a  way  of  becoming  over- 
extended both  in  amount  and  in  length  of  time.  This  con- 
dition is  due  to  the  fact  that  the  consuming  public  is  busy 
working  at  good  wages,  and  merchants  temporarily  lose 
sight  of  the  fact  that  such  periods  are  followed  sooner  or 
later  by  business  depressions  during  which  their  customers 
find  themselves  with  their  incomes  reduced  or  temporarily 
cut  off,  and  with  their  outstanding  credit  obligations  at  the 
maximum.  During  such  times  the  inability  of  the  con- 
suming public  to  pay  their  old  accounts  brings  on  failures 
and  depressions. 

Merchants  are  now  taking  action  to  prevent  overextension 
of  retail  credit  when  the  next  slowing  down  in  business  takes 
place.  They  are  seeing  to  it  that  slow  accounts  are  collected 
promptly  and  terms  of  credit  shortened. 

The  Acceptance  Defined.  The  trade  acceptance  is  de- 
fined by  the  Federal  Reserve  Board  as  a  draft  or  bill  of  ex- 
change, drawn  by  the  dealer  on  the  purchaser.  Trade  ac- 
ceptances should  have  nothing  to  do  with  nor  be  employed 
in  any  class  of  transaction  except  that  concerning  the  pur- 
chase and  sale  of  goods,  and  should  represent  only  current 
transactions. 

It  should  be  observed  that  the  trade  acceptance  is  not  a 
sight  draft  or  a  promissory  note,  for,  as  one  authority  has 
explained,  a  note  is  drawn  by  a  person  whereas  a  trade 
acceptance  is  drawn  on  a  person.  A  note  is  generally  used 
in  borrowing  money  and  in  the  settlement  of  past-due  ob- 
ligations, while  a  trade  acceptance  bears  on  its  face  evidence 
that  it  is  drawn  by  the  seller  of  merchandise  on  the  pur- 
chaser for  the  purchase  price  of  goods  sold  and  when  ac- 
cepted constitutes  a  valid  promise  to  pay  on  a  specified 

222 


THE  CREDIT  MAN  AND  THE  BANK 

date.  As  a  negotiable  instrument  it  is  as  binding  upon  the 
acceptor  as  his  promissory  note,  but  performs  a  different 
function. 

Change  from  Open  Book-accounts  to  Acceptance.  The 
change  from  open  book-accounts  to  the  trade  acceptance 
is  very  simple.  When  a  merchant  makes  out  the  regular 
monthly  bills  sent  to  charge  customers,  he  attaches  a  trade 
acceptance  to  each  bill  and  requests  his  customer  either  to 
pay  immediately  by  check  or  else  sign  and  return  the  trade 
acceptance.  In  the  past,  customers  have  bought  goods  with 
the  understanding  that  they  would  pay  for  them  within 
thirty  days  after  receiving  their  regular  monthly  bills. 
With  the  trade  acceptance  they  buy  goods  in  exactly  the 
same  way,  the  only  difference  being  that  they  are  now 
asked  to  sign  acceptances  as  written  acknowledgments  of  the 
understanding  that  they  are  to  pay  within  thirty  days  after 
receipt  of  the  bills.  Under  the  old  plan  a  merchant  could  not 
go  to  the  bank  and  discount  the  understanding  which  he 
had  with  his  customer,  because  the  understanding  was  not 
in  writing.  Under  the  new  plan  he  can  discount  the  trade 
acceptance  at  his  bank  because  it  constitutes  the  best  type 
of  commercial  paper. 

The  method  of  procedure  in  putting  this  system  to  prac- 
tical use  is  as  follows:  The  customer  buys  a  bill  of  goods, 
and  if  he  cannot  pay  cash  he  is  requested  to  sign  a  trade 
acceptance,  which  may  run  for  ninety  days,  or,  in  rural 
communities,  if  the  purchase  is  for  agricultural  purposes, 
it  may  run  for  six  months.  The  retailer  signs  the  paper  also, 
takes  it  to  his  bank  and  gets  cash  for  it,  subject  to  the  pre- 
vailing rate  of  discount.  The  customer  now  has  the  goods, 
the  banker  has  the  trade  acceptance,  and  the  dealer  has  his 
money.  There  is  no  more  trouble  with  the  transaction  unless 
the  customer  fails  to  pay  the  acceptance  at  the  specified  time. 

The  banker  is  the  one  who  makes  the  collection.     If  the 

223 


RETAIL    CREDITS    AND    COLLECTIONS 

customer  fails  to  pay,  the  dealer  is  in  less  trouble  than  if 
he  had  had  an  open  book-account,  for  he  has  a  positive 
acknowledgment  not  only  of  the  receipt  of  the  goods  but 
of  the  accuracy  of  the  account,  and  he  can  sue  with  little 
or  no  trouble. 

Five  Advantages  of  the  Acceptance.  While  the  change 
from  the  open  book-account  system  to  the  trade  acceptance 
system  does  not  involve  any  new  methods  of  selling  goods 
or  of  transacting  retail  business,  nevertheless  it  does  away 
to  a  large  extent  with  five  difficulties  under  which  retail 
merchants  operate.  These  difficulties  are  (1)  the  losses  and 
annoyance  which  come  from  long-drawn-out  efforts  to  col- 
lect past-due  accounts;  (2)  the  danger  that  customers  will 
purchase  more  goods  than  they  can  pay  for;  (3)  the  difficulty 
of  combating  dishonest  and  unfair  claims  and  set-offs; 
(4)  the  inability  of  merchants  to  borrow  from  their  banks 
more  than  50  per  cent,  of  their  accounts  receivable;  and  (5) 
the  restriction  on  bank  loans  due  to  the  rule  that  banks 
cannot  loan  more  than  10  per  cent,  of  their  capital  and  sur- 
plus to  any  one  concern.  It  would  seem  as  though  the  prac- 
tical elimination  of  these  disadvantages  should  amply  justify 
the  most  careful  consideration  of  the  trade  acceptance  sys- 
tem by  all  merchants,  and  it  is  interesting  to  note  how  these 
changes  will  be  brought  about. 

Encourages  Prompt  Payment.  Customers  of  retail  stores 
will  pay  promptly  when  the  trade  acceptance  is  due,  be- 
cause they  will  regard  a  fixed  date  in  writing  as  important, 
while  they  might  not  feel  the  importance  of  paying  on  open 
book-accounts  exactly  on  the  due  date.  As  a  matter  of 
fact,  they  often  let  them  run  long  past  due.  This  system 
also  guards  the  merchant  against  bad  accounts  because, 
when  he  offers  a  trade  acceptance  to  the  bank  for  discount, 
the  banker  passes  upon  it,  and  if  he  knows  anything  against 

the  credit  standing  of  the  acceptor  or  customer,  he  tells 

224 


THE  CREDIT  MAN  AND  THE  BANK 

the  merchant,  and  the  merchant  is  warned  against  extending 
further  credit  to  this  customer  without  first  making  a  care- 
ful investigation  as  to  the  safety  of  the  account. 

Partial  payments  can  be  accepted  on  trade  acceptances 
as  on  open  accounts,  and  if  for  any  reason  the  customer  can- 
not pay  on  the  due  date  and  the  merchant  consents  to  an 
extension  of  time,  this  can  be  arranged  by  securing  the  cus- 
tomer's promissory  note  with  interest,  thus  saving  the  mer- 
chant the  loss  of  interest  which  he  now  suffers  on  past-due 
open  accounts.  Prompt  payment  of  accounts  is  a  great 
help  to  the  merchant  against  mail-order  competition,  be- 
cause many  people  run  past-due  accounts  with  the  local 
merchants  while  they  spend  their  ready  money  with  out- 
of-town  concerns  which  require  cash  in  advance. 

Definite  due  dates  separate  a  merchant's  desirable  cus- 
tomers promptly  from  the  undesirable  ones  and  limit  the 
amount  of  goods  sold  to  those  who  are  unable  to  pay.  Conse- 
quently, his  chance  of  loss  from  bad  debts  is  greatly  reduced. 

Discourages  Unfair  Claims.  When  the  trade  acceptances 
are  used,  customers  of  retail  stores  are  not  able  to  set  up 
dishonest  and  unfair  claims  against  the  merchant  when  he 
is  compelled  to  sue  on  a  past-due  account.  As  such  claims, 
made  long  after  the  sale  of  goods,  are  difficult  to  combat 
and  often  result  in  losses  to  the  merchant,  not  to  mention 
legal  expenses  and  the  loss  of  business  that  usually  follows 
long-drawn-out  disputes.  When  a  trade  acceptance  is  given, 
however,  the  goods  are  at  once  acknowledged  to  be  satis- 
factory to  the  customer,  and  if  the  trade  acceptance  is 
not  paid  an  outside  holder  can  sue  exactly  as  on  any  other 
negotiable  instrument. 

Discourages  Overbuying.  Customers  of  retail  stores  are 
not  inclined  to  buy  more  than  they  can  afford  to  pay  for, 
if  they  understand  that  they  must  pay  on  a  definite  due 

date.     Under  the  open  book-account  system,  they  do  not 

225 


RETAIL    CREDITS    AND    COLLECTIONS 

feel  any  real  responsibility  to  pay  promptly,  and  conse- 
quently the  temptation  is  ever  present  to  run  up  large  ac- 
counts with  the  various  merchants,  with  the  hazy  resolve 
to  pay  up  some  time  in  the  future. 

Increases  the  Store's  Borrowing  Power  at  the  Bank. 
The  retail  merchant  borrows  from  the  bank  upon  his  signed 
statement.  The  bank's  line  of  credit  on  such  a  statement 
would  not  exceed  50  per  cent,  of  the  store's  accounts  re- 
ceivable. The  bank  will  not  only  extend  a  reasonable  line 
of  credit  based  on  the  inventory  when  such  a  line  is  neces- 
sary, but  will  discount  practically  100  per  cent,  of  the 
store's  trade  acceptances  because  they  will  all  be  in  the  form 
of  negotiable  instruments  carrying  two  names,  that  of  the 
merchant  and  that  of  the  merchant's  customer.  The  banker 
knows  that  each  trade  acceptance  represents  an  actual  sale 
of  goods  and  is  pretty  sure  to  be  self-liquidating,  because 
the  acceptor  has  planned  to  pay  it  out  of  his  fixed  income. 
Under  the  old  system,  the  banker  never  could  be  certain 
that  the  money  he  advanced  on  the  single-name  note  of 
the  merchant  was  actually  going  to  be  used  for  outside 
purposes,  and  the  banker  had  no  way  of  knowing  just  how 
the  merchant  was  going  to  raise  the  money  to  pay  his  note 
when  the  due  date  arrived. 

Every  banker  appreciates  the  advantages  of  double-name 
paper  of  a  self-liquidating  nature.  Furthermore,  trade  ac- 
ceptances are  rediscountable  at  the  Federal  Reserve  banks 
at  a  rate  of  interest  at  least  one-half  of  1  per  cent,  lower  than 
the  rate  on  promissory  notes. 

Many  small  banks  are  unable  to  satisfactorily  handle  the 
business  of  the  larger  local  business  concerns  because  they 
can  only  extend  them  credit  to  the  extent  of  10  per  cent, 
of  the  capital  and  surplus  of  the  bank.  If  these  business  con- 
cerns use  trade  acceptances  instead  of  open  book-accounts, 

their  banks  will  be  able  to  extend  them  such  credit  as  they 

226 


THE  CREDIT  MAN  AND  THE  BANK 

are  justly  entitled  to  have,  because  trade  acceptances  do 
not  come  within  the  10-per-cent.  rule  and  can  be  discounted 
for  any  amount  considered  safe  and  prudent  by  the  bank 
officers. 

Limitations  on  the  Use  of  Trade  Acceptance  by  Some 
Retailers.  There  are  limitations  to  the  general  application 
of  the  acceptance  in  certain  retail  lines  which,  from  the  con- 
clusions reached  after  discussion  in  the  Boston  Convention 
of  Retail  Credit  Men,  will  prevent  its  general  use. 

If  the  customer  can  be  made  to  pay  cash,  or  even  settle 
his  bills  in  full  to  the  retail  merchant  within  thirty  days,  the 
retailer  can  discount  his  bills  or  pay  them  as  they  become 
due,  without  resorting  to  the  trade  acceptance. 

In  cases  where  the  acceptance  is  used,  but  where  payment 
is  refused  by  the  consumer  when  presented,  the  retailer  must 
make  good  to  the  bank.  In  cases  where  it  is  necessary  to 
grant  extensions  beyond  the  original  acceptance  term,  the  re- 
tailer is  no  better  able  to  pay  the  account  than  if  he  carried 
it  on  open  account.  The  burden  is  his  just  the  same. 

There  are  undoubtedly  retail  lines  like  certain  hardware- 
stores,  dealers  in  agricultural  supplies,  and  general  stores  in 
rural  communities,  where  a  time  element  beyond  the  usual 
thirty-day  settlement  period  is  not  unusual  where  the 
acceptance  has  doubtless  worked  to  advantage.  Stores 
selling  food  products,  however,  or  goods  that  are  immedi- 
ately consumed,  which  still  require  strict  thirty-day  settle- 
ment of  purchases  made  many  times  during  the  month  in 
small  amounts,  would  not  be  particularly  benefited  by  the 
use  of  acceptances. 

When  the  customer  of  a  department  store,  for  example, 
gets  his  statement  at  the  end  of  the  month,  he  is  supposed 
to  send  his  remittance,  not  a  promise  to  pay  later.  His 
account  is  already  from  fifteen  to  twenty  days  old,  and  it  is 

time  to  pay  it,  not  to  promise. 
16  227 


RETAIL    CREDITS    AND    COLLECTIONS 

The  expense  of  handling  the  acceptance  arrangement, 
furthermore,  would  be  heavy  on  accounts  of  average  or 
small  size  for  retailers  of  this  class. 

Form  of  Acceptance.  The  Federal  Reserve  Board  has 
discouraged  the  use  of  the  trade  acceptance  where  it  repre- 
sents material  purchased  and  intended  to  be  used  in  a 
fixed  investment;  it  has  discouraged  its  use  in  connection 
with  instalment  payments  or  with  things  intended  for  per- 
sonal use  or  satisfaction.  It  has  endeavored  to  have  the 
acceptance  represent  a  strictly  commercial  transaction— 
the  purchase  of  goods  intended  for  resale. 

The  following  form  of  trade  acceptance  embodies  all  the 
requirements  of  the  instrument: 


a     fl=3  w  ^ 

4  111  I 


,£><« 


No Date $ 

on Pay  to  the  order  of 


Value  received,  and  Charge  the  same  to 
"o  "o  ^^  the  account  of 

QJ  -+3 

-^  a  Tn 

-t-^  H  J- <> 


o  o 


Across  the  face  of  the  acceptance  the  customer  or  acceptor 
writes  the  following  in  red  ink: 


Accepted , 
Payable. , 


(Specify  Bank  or  address) 

Convenience  of  a  Bank  Account.  Because  of  its  conven- 
ience, almost  every  merchant  nowadays  makes  use  of  the 
bank  to  the  extent  of  carrying  an  account  with  it.  Money 

228 


THE  CREDIT  MAN  AND  THE  BANK 

received  in  the  course  of  the  day's  business  is  deposited  in 
the  bank  for  safe  keeping.  It  is  dispensed  by  means  of 
the  store's  checks,  drawn  by  those  authorized  to  do  so  in 
payment  of  the  thousand  and  one  obligations  for  goods,  or 
services  bought. 

To  that  extent,  then,  the  merchant  knows  and  appreciates 
the  bank's  service  in  the  business  community. 

Because  of  the  fact  that  the  credit  and  collection  man  is 
called  upon  to  handle  customers'  remittances  on  accounts 
in  the  form  of  bank  checks,  it  is  essential  that  he  have  a 
clear  understanding  of  the  common  situations  that  may  arise 
in  a  depositor's  relation  with  his  bank,  like  "overdrafts," 
checks  "protested"  for  non-payment,  and  many  more. 

The  Meaning  of  an  Overdraft.  Sometimes  when  a  check 
is  presented,  drawn  against  a  running  account  which  is  not 
large  enough  at  the  moment  to  take  care  of  the  check,  the 
bank  will  not  make  partial  payments,  inasmuch  as  it  must 
be  able  to  produce  the  check  as  a  voucher  or  evidence  of 
payment.  Therefore,  the  bank  will  pay  the  entire  amount 
of  such  checks  and  charge  the  difference  against  the  de- 
positor's account.  This  is  what  is  known  as  an  "overdraft," 
and  it  amounts  to  an  advance  by  the  bank  of  money  to  the 
depositor. 

Strictly  speaking,  allowing  a  customer  to  overdraw  is 
against  the  rules  of  any  bank.  Unsually  it  is  evidence  that 
the  depositor's  credit  is  considered  good,  and  his  banker 
is  intimately  acquainted  with  his  business  affairs  and  allows 
this  temporary  accommodation  to  protect  that  credit. 

It  goes  without  saying,  then,  that  the  overdraft  privilege, 
being  a  pure  accommodation,  if  abused,  will  not  long  be 
extended  to  anybody. 

Stopping  Payment  on  Checks.  There  are  occasions  when 
a  merchant,  having  drawn  a  check  and  sent  it  to  pay  an 

account,  may  change  his  mind  and  wish  to  withhold  pay- 

229 


RETAIL    CREDITS    AND    COLLECTIONS 

The  expense  of  handling  the  acceptance  arrangement, 
furthermore,  would  be  heavy  on  accounts  of  average  or 
small  size  for  retailers  of  this  class. 

Form  of  Acceptance.  The  Federal  Reserve  Board  has 
discouraged  the  use  of  the  trade  acceptance  where  it  repre- 
sents material  purchased  and  intended  to  be  used  in  a 
fixed  investment;  it  has  discouraged  its  use  in  connection 
with  instalment  payments  or  with  things  intended  for  per- 
sonal use  or  satisfaction.  It  has  endeavored  to  have  the 
acceptance  represent  a  strictly  commercial  transaction— 
the  purchase  of  goods  intended  for  resale. 

The  following  form  of  trade  acceptance  embodies  all  the 
requirements  of  the  instrument: 


^    No Date $ 

§,    on Pay  to  the  order  of 


I  fill      Ma- 

Value  received,  and  Charge  the  same  to 
'o  "3  ^Jci  the  account  of 

To. 

0*0  «£ 


Across  the  face  of  the  acceptance  the  customer  or  acceptor 
writes  the  following  in  red  ink: 


Accepted 
Payable. , 


(Specify  Bank  or  address) 

Convenience  of  a  Bank  Account.  Because  of  its  conven- 
ience, almost  every  merchant  nowadays  makes  use  of  the 
bank  to  the  extent  of  carrying  an  account  with  it.  Money 

228 


THE  CREDIT  MAN  AND  THE  BANK 

received  in  the  course  of  the  day's  business  is  deposited  in 
the  bank  for  safe  keeping.  It  is  dispensed  by  means  of 
the  store's  checks,  drawn  by  those  authorized  to  do  so  in 
payment  of  the  thousand  and  one  obligations  for  goods,  or 
services  bought. 

To  that  extent,  then,  the  merchant  knows  and  appreciates 
the  bank's  service  in  the  business  community. 

Because  of  the  fact  that  the  credit  and  collection  man  is 
called  upon  to  handle  customers'  remittances  on  accounts 
in  the  form  of  bank  checks,  it  is  essential  that  he  have  a 
clear  understanding  of  the  common  situations  that  may  arise 
in  a  depositor's  relation  with  his  bank,  like  "overdrafts," 
checks  "protested"  for  non-payment,  and  many  more. 

The  Meaning  of  an  Overdraft.  Sometimes  when  a  check 
is  presented,  drawn  against  a  running  account  which  is  not 
large  enough  at  the  moment  to  take  care  of  the  check,  the 
bank  will  not  make  partial  payments,  inasmuch  as  it  must 
be  able  to  produce  the  check  as  a  voucher  or  evidence  of 
payment.  Therefore,  the  bank  will  pay  the  entire  amount 
of  such  checks  and  charge  the  difference  against  the  de- 
positor's account.  This  is  what  is  known  as  an  "overdraft," 
and  it  amounts  to  an  advance  by  the  bank  of  money  to  the 
depositor. 

Strictly  speaking,  allowing  a  customer  to  overdraw  is 
against  the  rules  of  any  bank.  Unsually  it  is  evidence  that 
the  depositor's  credit  is  considered  good,  and  his  banker 
is  intimately  acquainted  with  his  business  affairs  and  allows 
this  temporary  accommodation  to  protect  that  credit. 

It  goes  without  saying,  then,  that  the  overdraft  privilege, 
being  a  pure  accommodation,  if  abused,  will  not  long  be 
extended  to  anybody. 

Stopping  Payment  on  Checks.  There  are  occasions  when 
a  merchant,  having  drawn  a  check  and  sent  it  to  pay  an 

account,  may  change  his  mind  and  wish  to  withhold  pay- 

229 


RETAIL  CREDITS  AND  COLLECTIONS 

ment  for  some  reason.  In  such  cases  he  may  instruct  his 
bank  not  to  pay  the  check  when  it  is  presented,  and  the 
bank  is  obliged  to  follow  his  instructions.  If  through  error 
the  check  should  be  paid  in  spite  of  the  merchant's  instruc- 
tions, the  bank  must  stand  the  loss. 

If  a  merchant's  name  has  been  forged  to  a  check  which 
is  presented  and  paid  at  the  bank,  he  may  hold  the  bank 
liable  for  the  loss.  It  is  the  bank's  duty  to  make  sure  that 
signatures  are  genuine  on  all  checks  it  honors. 

Handling  Sight  Drafts  Through  the  Bank.  While  it 
isn't  very  often  that  a  retail  credit  man  has  occasion  to 
draw  a  sight  draft  on  a  customer  of  his  store  for  payment 
of  his  balance,  it  is  not  uncommon  practice  for  a  jobber  to 
draw  on  retailers  for  the  amount  due  on  accounts,  and  there- 
fore it  is  important  that  the  credit  man  should  understand 
exactly  how  drafts  are  handled.  The  draft  most  commonly 
used  is  drawn  ordinarily  at  sight  or  with  an  allowance  of  a 
few  days  by  one  individual  or  mercantile  house  on  another, 
or  on  an  individual  as  a  part  of  the  system  of  collecting 
past  due  accounts. 

A  draft  is  really  nothing  more  or  less  than  a  request  for 
money  that  is  due  from  one  person  to  another  which  is 
transmitted  not  direct,  but  through  the  agency  of  a  bank. 

The  bank  may  be  one  in  which  neither  party  has  any  par- 
ticular interest  or  money  on  deposit,  but  the  presenting  of  a 
draft  is  a  legitimate  part  of  any  bank's  service,  for  which  a 
small  charge  is  usually  asked. 

Drafts  are  a  great  help  in  collections.  They  are,  as  a  mat- 
ter of  fact,  little  more  than  a  presentation  of  the  account 
by  means  of  a  collector,  but  this  collector  is  a  bank;  and 
this  gives  the  presentation  a  formality,  a  publicity,  and  a 
weight  that  make  it  very  effective.  There  is  no  reason  why 
payment  of  a  draft  presented  by  a  bank  should  not  be  re- 
fused with  the  same  readiness  as  a  statement  in  the  hands 

230 


THE  CREDIT  MAN  AND  THE  BANK 

of  an  ordinary  bill-collector.  As  a  matter  of  fact,  however, 
the  debtor  does,  in  most  cases,  feel  an  injury  to  his  credit 
in  refusing  to  pay  a  formal  draft  duly  presented  through  a 
bank,  which  he  does  not  feel  when  he  refuses  a  collector's 
request  for  payment. 

Speaking  generally,  drafts  should  not  be  drawn  without 
first  notifying  the  debtor,  for  otherwise  the  draft  is  not  so 
likely  to  be  paid  and  there  is  a  strong  probability  of  giving 
offense. 

When,  therefore,  a  draft  is  to  be  drawn,  the  collection 
manager  should  write  a  letter  in  such  a  tenor  as  the  circum- 
stances require,  calling  attention  to  the  condition  of  the  ac- 
count and  notifying  the  debtor  that  he  will  be  drawn  upon 
if  the  amount  is  not  paid  within,  say,  the  next  five  days. 
Ample  time  should  always  be  given  for  the  letter  to  reach 
the  destination,  and  for  its  reply  to  come  back.  If,  at  the 
end  of  a  specified  period,  payment  is  not  forthcoming,  nor 
any  satisfactory  explanation  of  the  delay,  a  draft  is  drawn 
and  deposited  for  collection. 

The  draft  may  either  be  sent  direct  to  a  local  bank  in 
the  debtor's  locality  or  it  may  be  deposited  by  the  drawer 
in  his  own  bank  and  forwarded  by  the  bank  to  its  corre- 
spondent bank  in  the  drawee's  home  town. 

When  the  amount  is  small  such  drafts  are  usually  made 
payable  at  sight.  When  the  amount  involved  is  larger,  it 
may  be  wise  to  give  a  few  days'  grace,  making  the  draft 
payable  from  one  to  five  days'  sight,  according  to  the  cir- 
cumstances. It  is  better,  where  possible,  to  have  the  draft 
come  through  a  bank  other  than  that  at  which  the  debtor 
transacts  his  own  business;  for  the  effect  is  greater,  as  the 
strange  bank  is  not  so  likely  to  favor  the  debtor  by  holding 
the  draft  unduly.  Occasionally  a  bank  friendly  to  the  debtor 
will  hold  a  draft  for  several  weeks,  or  until  the  sender  of  the 

draft  has  it  traced. 

231 


RETAIL    CREDITS    AND    COLLECTIONS 

The  Place  of  the  Bank  Draft  in  Collection  Follow-up. 
The  collection  manager's  draft  is  usually  deposited  for  col- 
lection in  the  bank  with  which  his  concern  does  its  business. 
Slips  may  be  attached  to  the  draft  containing  any  instruc- 
tions that  may  be  necessary  for  the  bank.  If  the  bank 
with  which  the  debtor  does  business  is  known,  the  collec- 
tion manager  should  ask  to  have  the  draft  sent  to  some 
other  bank  in  the  town  in  which  the  debtor  resided. 
Where  many  drafts  are  drawn,  it  is  quite  customary  to 
send  to  the  bank  with  them  some  small  fee  to  cover 
collection  charges — usually  ten  cents  for  each  draft;  and 
this  payment  undoubtedly  does  secure  better  attention 
to  the  draft,  and  in  the  long  run  probably  more  than 
justifies  the  expense. 

The  fact  that  a  draft  has  been  drawn  and  deposited  in  the 
bank  for  collection  does  not  lift  any  responsibility  for  the 
account  from  the  shoulders  of  the  collection  manager.  He 
must  still  watch  it  as  closely  as  ever  until  the  draft  is  paid. 
For  this  purpose  his  invoice  should  be  placed  ahead  in  the 
collection  file  for  such  number  of  days  as  he  thinks  the 
draft  may  require  to  reach  its  destination,  be  presented, 
and  the  funds  or  a  report  be  returned.  If,  at  the  expira- 
tion of  that  time,  no  report  has  been  received,  he  may  either 
place  the  instrument  ahead  a  few  days,  so  as  to  give  the 
bank  a  little  additional  time,  or,  if  he  thinks  best,  call  on 
it  for  a  report  as  to  the  whereabouts  and  the  condition  of 
the  collection. 

Banks,  as  a  rule,  do  not  make  any  strenuous  effort  to  col- 
lect a  draft.  When  it  comes  in  they  give  it  to  a  messenger 
for  presentation,  or,  in  many  cases.,  merely  mail  the  debtor 
a  notice  stating  that  a  draft  has  been  received,  and  requesting 
him  to  call  and  pay  it.  When  the  draft  goes  out  by  messenger 
he  presents  it  for  payment  and  leaves  it,  if  it  is  paid,  but 

otherwise  brings  it  back  to  the  bank,  leaving  notice  at  the 

232 


THE  CREDIT  MAN  AND  THE  BANK 

office  of  the  debtor  for  him  to  call  at  the  bank  and  make 
payment. 

In  either  case  the  draft,  if  a  no-protest  draft,  is  held  over 
a  day  or  two,  or  as  suggested,  and  then,  if  not  paid,  it  is 
returned  to  the  party  who  sent  it,  with  the  briefest  possible 
report,  such  as  "no  attention,"  "no  reply,"  "not  found," 
or  such  other  statement  as  the  circumstances  require.  If 
the  draft  is  to  be  protested — as  will  be  done  unless  it  is 
marked  "no  protest,"  or  instructions  have  been  given  that 
it  is  not  to  be  protested — the  formal  protest  follows  upon 
non-payment,  and  this  adds  protest  fees  to  the  expense  of 
handling  the  collection  unless  the  fees  can  be  recovered 
from  the  debtor  later.  If  the  draft  is  paid  the  collecting 
bank  sends  the  funds  to  the  bank  from  which  it  received  the 
draft;  the  collection  manager's  concern  is  notified  that 
payment  has  been  made  and  the  amount  is  credited  to  his 
account. 

Protesting  Checks  or  Drafts.  It  is  sometimes  advisable 
to  protest  a  refused  draft  of  which  ample  notice  has  been 
given,  because  a  protest  tends  to  make  the  debtor  more 
careful  of  such  matters.  In  order  to  give  a  clear  idea  of  the 
process  employed  in  protesting  either  check  or  a  draft,  let 
us  assume  that  the  check  in  question  is  one  deposited  in  a 
given  bank,  drawn  on  another  bank  in  the  same  place.  The 
depositor  will  then  include  this  check  with  his  other  items 
and  send  to  the  particular  bank  which  is  best  equipped  to 
handle  it.  The  bank  receiving  the  item,  finding  that  it  is 
not  good,  sends  it  back  to  the  bank  in  which  it  was  originally 
deposited  and  receives  the  cash  for  it.  This  is  usually 
handed  to  the  bank  messenger  by  the  note-teller  of  the  bank 
in  which  it  is  deposited,  though  some  banks  refund  the 
money  at  the  paying-teller's  window.  As  a  rule,  however, 
it  reaches  the  note-teller  for  further  attention.  He  makes 

a  proper  record  of  the  fact  that  the  item  has  been  returned, 

233 


RETAIL    CREDITS    AND    COLLECTIONS 

and,  if  the  instructions  are  to  have  it  protested,  turns  it 
over,  after  the  close  of  business  on  that  day,  to  the  notary 
public,  who  usually  attends  to  this  work  for  the  bank.  The 
notary  usually  receives  these  items  after  the  closing  of  the 
bank,  and  then  goes  himself  to  the  bank  on  which  the  check 
is  drawn,  and  presents  the  check  again  to  the  paying-teller 
for  payment.  The  paying-teller  makes  a  new  investigation 
of  the  account  and  refuses  payment  on  the  check.  The 
notary  then  returns  to  his  office  and  writes  out  a  formal  pro- 
test against  the  non-payment  of  the  check.  This  protest 
is  usually  in  the  following  form: 

UNITED  STATES  OF  AMERICA} 
STATE  OP  NEW  YORK  >  ss. 

COUNTY  OF  KINGS  ) 

I  HEREBY  CERTIFY  that  on  the day  of ,  1914,  at 

the  request  of  the  A.  B.  C.  National  Bank,  I ,  a  Notary 

Public  of  the  State  of  New  York,  duly  commissioned  and  sworn, 
dwelling  in  the  County  of  Kings,  Borough  of  Brooklyn,  in  the  City 
of  New  York,  did  present  the  original  check  hereto  annexed  to  the 

X.  Y.  Z.  National  Bank  at ,  and  then  and  there  demanded 

payment  thereof,  which  was  refused,  whereupon  I,  the  said  Notary, 
at  the  request  of  the  aforesaid,  DID  Protest,  and  by  these  presents 
do  publicly  and  solemnly  PROTEST,  as  well  against  the  maker,  drawer 
and  indorsers  of  the  said  check  as  against  all  others  whom  it  may 
concern,  for  exchange,  reexchange,  and  all  costs,  damages  and  in- 
terest already  accrued,  and  to  be  hereafter  incurred  for  want  of 
payment  of  the  same.  Thus  done  and  protested  in  the  Borough 
of  Brooklyn,  City  of  New  York,  aforesaid,  in  the  presence  of  John 
Doe  and  Richard  Roe,  witnesses. 

I  FURTHER  CERTIFY  that  on  said  day,  due  notice  of  all  the  fore- 
going matters,  including  the  said  presentment  demand,  non- 
payment and  protest  of  the  said  original  check  and  demand  and 
refusal  of  the  payment  thereof,  as  given  by  me  in  behalf  of  the 
said  bank,  to  each  and  all  of  the  following  named  persons,  being 
makers,  drawers  or  indorsers  of  the  said  check  by  depositing  on 
said  day  written  notices  thereof,  signed  by  me,  each  notice  securely 

234 


THE  CREDIT  MAN  AND  THE  BANK 

inclosed  in  a  duly  postpaid  wrapper,  in  the  United  States  Post 
Office  at  Brooklyn,  Kings  County,  New  York,  which  said  notices 
were  duly,  respectively  addressed  as  follows: 

at 

at 

at 

at 

which  places  above  named  set  opposite  the  respective  names  of 
said  parties,  are  the  reputed  places  of  residence  of  the  said  persons 
respectively,  and  the  post  office  at  the  above  named  places  being 
in  each  instance  the  post  office  nearest  to  the  said  respective  places 
of  residence,  which  said  notices  duly  contained  in  each  instance 
a  description,  its  date,  amount,  due  date,  and  the  names  of  the 
parties,  which  said  notice  included  the  statement  of  said  present- 
ment, demand,  non-payment,  dishonor  and  protest. 

IN  TESTIMONIUM  VERTATIS 

Notary  Public, 
Kings  County, 
New  York. 

The  notice,  which  is  referred  to  in  the  formal  protest  and 
sent  to  each  of  the  parties  named,  would  read  as  follows: 

Date 

Brooklyn,  New  York. 

You  WILL  PLEASE  TAKE  NOTICE  that  a  check,   made  by 

for  $ ,  dated 

payable  at 

indorsed  by  you  and  due  this  day  and  duly  presented  for  payment 
at  the  place  therein  testified  where  the  same  is  payable,  and  that 
payment  thereof  has  been  refused,  and  that  the  same  is  PROTESTED 
for  non-payment,  and  that  the  holders  look  to  you  for  payment 
thereof. 

Respectfully  yours, 

Notary  Public, 
Kings  County, 
New  York. 
To 

235 


RETAIL  CREDITS  AND  COLLECTIONS 

After  the  notary  has  completed  his  work  and  mailed  the 
notices,  he  returns  the  check,  together  with  the  protest 
form  pasted  to  it,  to  the  bank  who  handed  it  to  him.  He  is 
then  paid  his  fee,  which  usually  amounts,  in  the  state  of 
New  York,  to  $1.25,  plus  the  cost  of  postage.  The  bank 
then  charges  the  check,  together  with  the  cost  of  protest, 
to  the  account  of  its  depositor. 

The  effect  of  the  protest  is  to  give  notice  to  all  who  are 
concerned,  including  the  indorsers,  that  the  check  was 
properly  presented  at  the  place  where  it  was  payable  on 
the  day  it  was  due.  In  the  case  of  notes  it  is  necessary, 
because  if  a  note  is  not  properly  presented,  all  indorsers  are 
released  from  further  liability.  They  have  the  right  to  as- 
sume that,  if  demand  is  not  made  upon  them,  the  note  has 
been  paid.  A  protested  check  is  legal  evidence  before  a 
court  that  this  presentation  has  been  properly  made,  and 
this  is  the  reason  for  its  use. 

Using  Care  in  Indorsement  of  Checks.  If  a  check  is  made 
payable  to  John  Smith  or  bearer,  it  is  not  the  bank's  fault 
if  the  wrong  person  gets  the  money,  because  it  has  done  no 
more  than  follow  instructions.  In  that  case  the  loss  is  the 
merchant's. 

When  checks  are  sent  to  the  bank  for  deposit,  they  should 

be  indorsed  on  the  back  "  pay  able  to  the bank"  and 

signed.  Checks  or  drafts  should  not  be  indorsed  in  blank. 
Thousands  are  indorsed  in  that  way  every  day,  but  the 
practice  is  always  risky. 

A  merchant  one  day  received  a  draft  for  fifty  dollars.  He 
wanted  to  make  a  similar  payment  to  his  jobber,  so,  instead 
of  buying  a  new  draft,  he  merely  wrote  his  name  on  the 
back  of  this  one  and  remailed  it  to  the  jobber.  The  draft 
fell  into  improper  hands  and  was  cashed.  The  merchant 
lost  his  money.  What  he  should  have  written  on  the  back 

of  the  draft  was  "Pay  to  the  order  of "  and  then  signed 

236 


THE  CREDIT  MAN  AND  THE  BANK 

his  name.  Then  when  it  fell  into  improper  hands,  this  person 
could  not  have  cashed  it  without  committing  forgery. 

The  merchant  may  send  a  messenger  to  the  bank  to 
make  deposits  for  him,  included  in  which  are  checks  in- 
dorsed simply  with  the  merchant's  name.  Under  these  cir- 
cumstances, the  messenger,  if  he  wanted  to  do  so,  could 
write  his  own  name  under  the  merchant's  signature  and 
secure  the  money.  The  loss  in  such  a  case  would  be  the 
merchant's.  When  checks  are  sent  to  the  bank  for  deposit, 
see  that  they  are  indorsed  on  the  back,  payable  to  the  bank 
and  not  in  blank. 

Constructive  Aid  from  the  Banker.  So  it  will  be  seen 
that  the  merchant  who  has  once  established  credit  with  his 
bank  should  realize  that  his  credit  standing  is  a  part  of  the 
character  of  his  business  and  that  it  is  something  that  may 
stand  him  in  good  stead  in  times  of  stress.  It  is  no  wonder, 
then,  that  the  banker  elects  to  do  business  only  with  people 
who  are  strictly  businesslike  and  of  unquestioned  character. 
But  the  retail  merchant's  real  interest  in  his  local  bank 
is  much  more  fundamental  than  to  observe  the  simple 
" don't"  of  safe  indorsements  or  the  like.  His  interest  is  to 
make  his  acquaintanceship  with  the  banker  a  really  con- 
structive and  helpful  influence  in  his  own  business. 

For  example,  the  mere  acceptance  of  funds  for  deposit 
and  the  convenience  of  the  bank's  checking  account  are 
but  items  of  its  services  to  the  merchant. 

A  banker's  stock  in  trade  is  credit.  He  buys  and  sells 
it  in  the  form  of  rights  to  the  use  of  money.  This  right  to 
use  money  or  the  bank's  credit  is  available  for  use  in  ex- 
panding the  merchant's  business.  Under  the  right  conditions 
the  banker  is  glad  to  let  the  merchant  have  the  bank's 
money,  and  under  these  conditions  the  merchant  can  well 
afford,  in  the  interests  of  his  business,  to  borrow  wisely, 

to  discount  his  bills  payable,  thus  effecting  a  clear  saving 

237 


RETAIL  CREDITS  AND  COLLECTIONS 

of  considerable  money  that  would  not  be  possible  if  he 
tried  to  make  the  money  out  of  his  own  business  for  the 
purpose.  Every  merchant  knows  that  it  is  expedient  at 
certain  times  during  the  year  to  arrange  short-term  loans 
in  order  to  take  advantage  of  discounts  or  meet  maturing 
bills  and  still  save  money  over  and  above  the  interest  charge. 

When  the  Banker's  Friendship  Helps.  And  loans  of  this 
kind,  if  his  affairs  are  in  order,  boost  the  retailer's  credit 
not  only  with  his  jobber,  but  with  his  banker  as  well,  who, 
like  a  real  credit  man,  likes  to  do  business  with  a  man  who 
pays  his  obligations  promptly  when  they  are  due. 

There's  a  real  dollars-and-cents  advantage,  then,  in 
standing  well  with  the  banker.  To  do  that  the  merchant 
must  stand  right  with  himself,  must  know  the  exact  con- 
dition of  his  business  from  all  angles,  and  be  able  to  show 
the  banker  at  any  time  that  his  affairs  are  in  order. 

Probably  no  item  of  a  store's  statement  of  its  affairs  is 
more  carefully  scrutinized  by  the  banker  to  get  its  real 
condition  than  the  statement  of  its  accounts  receivable. 

Invariably  the  store,  when  making  a  statement  to  the  bank, 
will  seek  to  show  a  solvent,  liquid  condition  of  its  finances. 
When  examining  such  a  statement,  if  the  bank  should  find 
a  large  amount  of  accounts  receivable,  more  than  from  one- 
tenth  or  one-twelfth  of  the  sales,  there  will  be  some  ques- 
tions raised.  The  implication  at  once  is  a  laxness  in  the 
store's  collection  policy  and  lack  of  financial  ability  on  the 
part  of  its  management.  So  right  at  this  point  is  where 
the  store's  credit  and  collection  policy  and  its  administra- 
tion plays  a  very  important  part  in  the  upbuilding  of  a 
store's  financial  standing. 

Bank  credit  is  valuable  for  a  business  man,  especially 
in  a  community  of  moderate  size,  where  every  one  is  ac- 
quainted with  his  neighbor.  Banks  are  frequently  asked  to 

give   information   regarding  the   credit   standing   of   their 

238 


THE  CREDIT  MAN  AND  THE  BANK 

depositors  and  others.  While  they  guard  carefully  against 
giving  details  about  a  merchant's  business,  they  must,  of 
course,  give  some  answer  to  the  inquiries  made.  The  value 
of  a  retailer's  account  with  the  bank,  the  nature  of  his 
business,  his  business  methods  and  his  general  standing  in 
the  community,  all  have  an  influence  on  the  banker  when  he 
makes  his  estimate.  Once  the  banker  is  permitted  to  know 
a  merchant's  business  and  his  financial  condition,  he  is  in  a 
position  to  exert  a  wide  influence  for  good  in  the  merchant's 
favor.  The  report  he  gives  to  the  commercial  world  regard- 
ing the  store,  when  called  upon  for  information,  is  more 
important  than  anything  anybody  else  can  say.  The 
banker  is  usually  the  last  source  of  information  to  confirm 
the  statements  regarding  a  merchant's  standing  gained 
through  other  sources. 


XVII 

CREDIT  AS  A  BUSINESS-DEVELOPER 

The  Credit  Man  as  a  Mixer.  The  retail  merchant  has 
always  been  a  more  or  less  uncommunicative  individual, 
disposed  to  keep  his  business  strictly  to  himself.  He  has 
generally  fought  shy  of  the  idea  of  co-operating,  especially 
with  competitors. 

Within  the  last  few  years,  however,  he  has  come  to  see 
the  advantages  of  closer  contact  and  co-operation  with  his 
fellow-merchants.  He  no  longer  keeps  so  much  to  himself. 
He  tells  with  much  pride  now  how  he  runs  his  business,  and 
he  is  hearing  how  other  merchants  run  theirs.  He  is  begin- 
ning to  combine  with  others,  to  increase  trade.  He  is  pro- 
moting the  organization  of  merchants'  associations  and 
bureaus  for  the  exchange  of  information  wherever  possible. 

The  career  of  the  Filenes  of  Boston  affords  one  of  the  many 
examples  of  the  kind  of  success  which  may  follow  the  new 
way  of  carrying  on  a  retail  business.  In  1891  the  Filenes 
occupied  two  small  retail  stores  in  Boston,  with  floor  space 
ea«h  of  about  twenty  square  feet.  Twenty  years  later  their 
sales  were  nearly  $5,000,000  a  year,  and  they  now  occupy 
a  building  with  more  than  nine  acres  of  floor  space,  with 
sales  totaling  about  $15,000,000,  and  all  of  it  from  ready- 
to-wear  merchandise. 

The  Filenes  assert  that  the  greater  efficiency  of  their  em- 
ployees shows  industrial  democracy  and  social  justice  have 

240 


CREDIT    AS    A    BUSINESS-DEVELOPER 

been  money-makers  for  them.  The  so-called  practical  busi- 
ness man,  the  narrow  money-maker,  without  either  vision 
or  ideals,  who  pooh-poohed  the  Filenes  as  impractical 
theorists  has  been  answered  on  his  own  plane  of  material 
success. 

Prosperous  Community  Makes  Prosperous  Retailers. 
When  merchants  ask  themselves,  "Why  is  business  bad?" 
the  common  answer  is,  poor  crops,  tight  money,  or  the  war. 
But  the  real  trouble  is  with  the  people  to  whom  they  sell. 
When  people  are  poor  they  cannot  buy.  They  cannot 
satisfy  their  wants  by  purchasing  goods.  They  cannot  pay 
their  bills  for  which  they  are  given  credit.  Every  improve- 
ment, then,  in  the  condition  of  people  in  the  community 
helps  to  make  business  better.  If  the  prosperity  of  a  city 
or  a  community  depends  upon  the  retail  business,  it  is 
equally  true  that  the  prosperity  of  retail  business  depends 
upon  the  prosperity  of  the  community.  The  merchant  must, 
in  self-defense,  see  that  the  city  in  which  he  is  doing  business 
is  well  governed.  To  do  this  he  must  take  a  hand  himself. 
And  so  business  men  everywhere  are  coming  to  realize  that 
it  is  just  as  much  a  part  of  their  business  to  participate  in 
their  cities'  affairs  as  it  is  for  them  to  devote  their  time  to 
their  own  individual  business  enterprise. 

To  do  this  it  is  not  necessary  to  run  for  office,  but  any 
man  can  give  the  benefit  of  his  experience  and  business 
knowledge  to  help  make  his  city  a  place  to  be  proud  of  com- 
mercially, socially,  and  industrially. 

Broadening  the  Store's  Influence.  While  it  would  or- 
dinarily be  assumed  that  the  job  of  keeping  a  store's  good 
name  and  reputation  for  service  to  the  community  fresh 
in  the  minds  of  its  residents  is  one  for  the  store's  adver- 
tising to  perform,  consider  how  directly  its  credit  and  col- 
lection policy  may  affect  the  results. 

Every  account  in  the  store's  books  which  is  kept  open 

241 


RETAIL    CREDITS    AND    COLLECTIONS 

and  active  is  proof  of  continual  satisfaction  with  its  goods 
and  service.  The  minimum  of  complaints  because  of  delivery 
errors,  or  delays  because  of  discourtesy  by  salespeople,  or 
from  poor  quality  of  goods,  makes  powerfully  for  lowered 
costs  of  doing  business  and  an  always  widening  store  influ- 
ence, with  an  inevitable  increase  in  the  volume  of  sales. 

Real  tact  and  judgment  exercised  in  the  e very-day  pur- 
suit of  money  due  from  slow  accounts,  so  that  there  may 
be  the  least  possible  need  to  resort  to  unpleasant  collection 
measures,  is  no  small  contributing  factor  in  this  broadening 
of  the  store's  influence. 

Creating  Wants  That  May  Safely  Be  Supplied.  The 
lists  of  a  store's  customers — regular  charge  customers  as 
well  as  cash  buyers — constitute  perhaps  its  most  valuable, 
and  certainly  its  most  direct,  contact  with  the  individuals 
living  in  the  community.  The  care  exercised  in  the  selection 
of  the  names  for  such  lists,  on  which  large  sums  may  be 
spent  for  circularizing  to  tell  of  the  store's  offerings,  offers 
to  the  credit  office  a  most  valuable  opportunity  to  save  itself 
trouble,  and  the  store  from  losses,  if  it  eliminates  any  one 
of  doubtful  standing. 

With  its  facilities  at  hand  for  securing  and  checking 
names  and  addresses,  the  credit  office  assumes  the  importance 
of  real  first  aid  to  the  work  of  promoting  a  store's  publicity 
campaign  through  circularizing. 

In  increasing  the  store's  sales,  no  matter  what  means 
may  be  taken  to  do  it,  it  becomes  necessary  to  increase  the 
number  of  its  customers.  As  a  business  grows  and  expands, 
and  as  a  town  grows,  the  number  of  customers  of  a  store  will 
automatically  increase,  provided  the  merchandise,  the  store 
service,  and  the  prices  are  right,  and  provided  they  offer 
sufficient  inducements  to  new-comers  and  people  who  have 
traded  at  other  stores  to  make  their  purchases  at  a  store 

where  they  have  never  traded  before. 

242 


CREDIT    AS    A    BUSINESS-DEVELOPER 

When  a  store  does  an  extensive  credit  business,  it  is  the 
natural  object  of  the  credit  man  to  consistently  increase 
the  number  of  its  desirable  accounts.  This  may  be  easily 
done  by  means  of  personal  letters  to  those  who  are  known 
to  pay  their  bills  promptly,  and  who  perhaps  have  main- 
tained accounts  at  other  stores. 

Recalling  the  Store's  Service.  Important  as  it  is  for  the 
store's  credit  man  to  provide  for  the  opening  of  new  accounts, 
and  for  collecting  money  due  on  accounts  that  have  been 
opened,  there  is  one  more  function  that  he  is  no  less  bound  to 
perform,  namely,  to  see  that  his  accounts  are  kept  active, 
and  not  allowed  to  lapse  after  being  opened. 

There  are  a  great  many  people  who  will  apply  for  credit, 
and  to  whom  credit  will  be  extended,  who,  after  the  account 
has  been  opened  for  a  few  months,  will  drop  away  from  the 
store  where  they  have  been  buying.  It  is  the  credit  man's 
business  to  investigate  to  find  out  why  the  account  has  be- 
come inactive. 

In  some  cases  a  series  of  letters  to  a  list  of  such  customers 
have  brought  interesting  returns.  One  credit  man  mailed 
a  blank  statement  to  each  name  on  his  inactive  list,  on  which 
appeared  a  rubber-stamp  impression  as  follows: 

This  is  the  first  statement  we  have  mailed  you  in  several  months. 
Just  see  how  much  you  owe  us.  What's  the  trouble?  As  always, 
we  should  be  happy  to  serve  you. 

Some  of  those  to  whom  his  statement  was  directed 
were  inclined  to  be  indignant  until  they  read  the  message. 
On  the  whole,  however,  it  brought  quite  a  decidedly  favorable 
response. 

Another  effort  of  the  same  sort  is  illustrated  in  the  state- 
ment reproduced  here  sent  out  by  Godchaux's,  New  Orleans, 
Louisiana. 
17  243 


RETAIL    CREDITS    AND    COLLECTIONS 


Amount  Enclosed 


OUTFITTERS  for  MEN  and  BOYS 

COR.  CANAL  AND  CMARTRES  STS. 

NEW  ORLEANS 


Sold  to  Ur.  S.B.  Lemlo, 
624  Oravier  St. 
City 


Statement  of  your  Account  for  the  Month  of  SOMETIME  AGO 

TEAM  OFF  AND   RETURN   STUB  WITH   REMITTANCE.     WANCELEO  CHECH  RETURNED   IT  BANK  IS  YOUR   RECEIPT 


DATE 

LOT  NO. 

ITEMS 

CHARGES 

CRED.TS 

BALANCE 

LONG 

A  SUIT  OF  CLOTHES 

NONE 

AGO 

A  HAT' 

NONE 

A  PAIR  OF  SHOES 

NONE 

SHIRTS 

NONE 

NECKTIES 

NONE 

UNDERWEAR 

NONE 

BOYS'  CLOTHES 

NONE 

x  BILLS  PAYABLE  MONTHLY.  Claims  must  b«  made  within  Ten  Days. 

GODCHAUX'S 


244 


CREDIT    AS    A    BUSINESS-DEVELOPER 

Making  the  Community  Safe  for  Business.  There  is  a 
large  number  of  people  who  desire  to  meet  their  obligations, 
unquestionably,  but  who,  for  various  reasons,  like  illness, 
misfortune,  poor  management,  and  the  like,  find  themselves 
unable  to  pay  their  bills  promptly. 

The  establishment  of  Morris  Plan  banks  in  various  cities 
throughout  the  country — there  are  more  than  a  hundred  in 
operation  now — is  coming  to  be  of  the  greatest  help  in  the 
collection  of  retail  accounts.  Any  one  with  good  character 
and  an  earning  capacity  just  a  little  in  excess  of  his  necessary 
running  expenses  can  secure  money  from  one  of  these  com- 
panies. This  money  can  be  used  to  pay  his  debts  in  full, 
and  he  can  distribute  his  payments  to  the  Morris  Plan  Com- 
pany over  a  period  of  fifty  weeks — or  a  shorter  time,  if  he 
can  make  larger  weekly  payments. 

Outlined  briefly,  the  procedure  in  securing  a  loan  from 
the  Morris  Plan  Company  is  as  follows :  The  applicant  for 
a  loan  is  asked  to  make  a  list  of  every  debt  he  owes,  and  then 
to  make  application  for  a  sum  large  enough  to  see  that  he 
can  pay  all  his  creditors  in  full. 

The  extending  of  credit  to  its  borrowers  by  the  Morris 
Plan  Company  is  based  entirely  upon  their  good  character 
and  earning  capacity — no  chattel  mortgages  or  pawns  are 
accepted  as  security.  Interest  charges  are  at  a  rate  of 
6  per  cent,  per  annum,  and  there  is  an  extra  charge  for  an 
investigation  fixed  at  one  dollar  for  every  fifty  dollars  bor- 
rowed, but  no  fee  exceeds  five  dollars.  Interest  and  fees 
are  deducted  in  advance. 

The  applicant  is  asked  to  give  two  other  people  with 
qualifications  similar  to  his  own— namely,  a  good  character 
and  fair  earning  capacity — to  sign  his  note  in  order  to  pro- 
vide for  the  meeting  of  the  weekly  payments  in  case  the 
original  borrower  should  for  any  reason  fail  to  meet  the 
payments. 

245 


RETAIL    CREDITS    AND    COLLECTIONS 

How  the  Morris  Plan  Works.  The  experience  of  the 
Morris  Plan  Company,  covering  the  making  of  loans  of 
nearly  $30,000,000,  has  been  that  only  two  out  of  every 
hundred  co-signers  or  indorsers  have  ever  been  called  upon 
to  help  make  the  payments.  In  order  that  the  borrower 
may  accumulate  enough  money  during  a  certain  period  to 
pay  off  his  note  of  maturity,  he  is  furnished  with  an  instal- 
ment certificate  which  he  pays  for  in  fifty  weekly  instal- 
ments. If  he  is  in  a  position  to  pay  in  more  than  2  per  cent, 
of  the  amount  of  his  loan  each  week,  the  period  for  which 
the  loan  is  made  can  be  decreased  in  exact  ratio  to  his  ability 
to  increase  his  weekly  payments.  This  places  the  borrower 
in  a  position  to  pay  his  note  promptly  when  due. 

Under  the  operation  of  the  plan  the  borrower  has  proven 
to  him  the  fact  that  during  his  payment  period  he  really  can 
put  away  systematically  a  certain  amount  from  his  earnings 
each  week,  and  he  is  encouraged  to  continue  the  practice. 

The  Morris  Plan  Companies  pay  interest  at  4  per  cent., 
computed  after  the  twenty-fifth  payment  has  been  made, 
and  as  soon  as  the  purchaser  of  one  of  these  instalment  certifi- 
cates has  accumulated  fifty  dollars  he  can  convert  it  into  a 
full-paid  investment  certificate  which  earns  5  per  cent. 

Retail  credit  men  generally  are  coming  to  feel  that 
the  operation  of  such  a  plan  as  that  offered  by  the  Morris 
Plan  banks,  coupled  with  a  real  desire  to  be  of  help  to  people 
who  have  an  honest  wish  to  meet  their  obligations,  must  aid 
materially  in  decreasing  the  number  of  delinquents  in  a  com- 
munity. 

They  are  usually  glad  to  work  actively  in  co-operation  with 
such  a  plan,  because  by  so  doing  they  are  helping  to  make 
their  community  more  and  more  safe  for  business. 

Promoting  Sales  Through  a  Broad  Credit  Policy.  The 
statement  is  often  made  that  a  sale  is  never  a  100-per-cent. 

sale  until  the  money  is  collected.    No  profit  is  a  profit 

246 


CREDIT    AS    A    BUSINESS-DEVELOPER 

until  it  is  cashed.  No  selling  is  complete  until  it  has  sold 
the  customer  the  store's  service  and  its  terms  as  well  as  its 
goods.  There  is  perhaps  too  little  realization  among  mer- 
chants generally  of  the  vital  part  played  by  credit-and- 
collection  policies  and  methods  in  general  sales  strategy. 

While  much  depends  on  details  of  how  credit  applicants 
should  be  handled,  how  often  dunning  letters  should  be  sent, 
and  so  on,  the  store's  broad  credit-and-collection  policy 
should  originate  in  and  be  co-ordinated  with  its  selling  and 
merchandizing  policy.  As  was  stated  definitely  in  the  open- 
ing chapter  of  this  book,  credit  losses  must  be  viewed  to 
some  extent  as  sales  expenses.  There  is  an  average  mean 
figure  of  annual  credit  loss  in  any  line  of  business.  Up  to 
this  average  the  loss  is  a  matter  of  general  profit  and  loss; 
but  there  is  no  cheaper  method  of  sales  promotion  in  many 
cases  than  to  buy  some  credit  losses.  There  is  no  successful 
forward  drive  in  sales  without  risk,  and  it  pays  to  bet  on 
human  nature  in  selling,  even  if  you  charge  the  cost  to  the 
expense  of  selling. 

How  could  it  be  otherwise?  It  isn't  any  great  trick  to 
collect  a  debt.  The  weapons  are  all  in  the  hands  of  the  store 
and  the  specific  bill  up  for  collection  is  the  smallest  pawn  in 
the  game  of  chess.  The  real  thing  at  stake  is  the  account 
itself — the  good-will  and  desire  to  trade  on  the  part  of  the 
customer.  He  represents  the  capital  of  the  firm.  The 
store's  credit  man  squanders  its  vital  capital  when  he  drives 
away  business  or  alienates  accounts  through  failure  to  keep 
this  broad  sales  viewpoint  in  mind  when  he  is  applying  his 
credit-and-collection  policy. 

Credit  Administered  from  the  Sales  Angle.  A  great  many 
businesses  to-day  exist  entirely  on  credit.  Their  success  is 
universally  due  to  the  fact  that  their  credit  is  administered 
wisely  from  the  sales  angle.  When  you  extend  credit  you 

are  extending  two  things — confidence  and  time.    The  mis- 

247 


RETAIL    CREDITS    AND    COLLECTIONS 

take  made  with  regard  to  confidence  is  that  certain  conven- 
tional standards  are  applied  without  real  knowledge  of 
human-nature  risks.  The  credit  judgment  tends  to  become 
mechanical,  cynical,  and  hypercritical,  failing  to  realize  that 
no  human  being  can  be  sized  up  accurately  for  what  he  is 
without  taking  into  account  also  what  he  is  going  to  be. 
A  man  is  always  more  than  the  cold  circumstances  of  the 
moment  make  him  out  to  be;  and  it  is  a  deadly  mistake 
to  judge  credit  by  circumstantial  facts  alone.  In  Detroit 
there  are  plenty  of  stories  current  of  the  inability  of  credit 
men  and  bankers  a  few  years  ago  to  correctly  measure 
Henry  Ford. 

The  failure  of  the  credit  man  to  properly  get  the  sales 
point  of  view  is  paralyzing  to  business  development.  It 
cannot  be  too  strongly  emphasized  that  any  credit  depart- 
ment is  absolutely  missing  its  true  opportunity  if  the  general 
average  of  losses  in  the  particular  end  of  industry  is  being 
pushed  lower  by  means  of  strenuous  methods.  It  is  a  serious 
mistake  to  judge  a  credit  department's  "efficiency"  by  its 
reduction  of  credit  losses  below  the  average  of  the  industry. 
Any  credit  department  should  be  very  rigidly  investigated 
if  the  losses  are  below  what  they  ought  to  be.  The  manager 
in  any  line  of  business  ought  to  work  out  this  average  and 
put  it  up  to  the  credit  man  to  keep  losses  at  that  level, 
neither  above  nor  below. 

Money  spent  on  average  credit  losses  is  money  invested 
or  paid  for  the  development  of  confidence  and  the  proper 
taking  of  risks  in  that  business.  The  average,  of  course, 
varies  in  different  lines,  according  to  the  nature  and  num- 
ber of  risks  undertaken. 


CREDIT 

Credit — Is  based  on  confidence. 

Credit — Is  the  "bell  cow"  of  business. 

Credit — Is  what  some  people  ask  for — but  don't  get. 

Credit — Is  the  pivot  around  which  all  business  is  centered. 

Credit — Is  the  foundation  to  a  happy  life,  if  properly  pro- 
tected. 

Credit — Is  what  people  buy  on;  but  some  don't  seem  to 
respect  it. 

Credit — Is  the  means  some  people  take  to  get  "something 
for  no  thing. " 

Credit — And  "booze"  don't  mix  any  better  than  oil  and 
water. 

Credit — Puts  the  "shake"  in  a  young  man's  knees  when  he 
tries  to  get  his  first  "red  tie"  on  time. 

Credit — Is  the  greatest  possible  asset  a  salaried  man  can 
have.  He  should  be  as  jealous  of  it  as  a  boy  is  of 
his  first  love. 

Credit — And  "home  account-keeping"  should  be  lectured 
on  from  time  to  time  in  our  public  schools. 

Credit — Is  often  the  cause  of  a  merchant's  wife  wearing  her 
last  year's  bonnet  (just  because  he  doesn't  watch 
it  as  he  should). 

Credit — Is  the  one  thing  no  nation  on  earth  can  get  along 
without,  and  the  better  the  credit  the  stronger  the 
nation. 

Credit — Is  the  basis  of  two  of  the  country's  greatest  busi- 
ness organizations — The  National  Association  of 
Credit  Men  and  The  Retail  Credit  Men's  National 
Association. 

A.  C.  PEARSONS, 
In  Credit  World. 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


AN  INITIAL  FINE  OF  25  CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  SO  CENTS  ON  THE  FOURTH 
DAY  AND  TO  $1.OO  ON  THE  SEVENTH  DAY 
OVERDUE. 


^2_ 


™F 


a 


HO 


54  fc 


ifoir 





-jm 


..  i) 


FCB  28  1963 


REC'D  LP 


9 


USE 


mt 


1 


YC  25514 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


